HUNTINGTON BANCSHARES INC/MD (Form: 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY PERIOD ENDED September 30, 2004

Commission File Number 0-2525

Huntington Bancshares Incorporated


Maryland		31-0724920
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

41 South High Street, Columbus, Ohio 43287

Registrant’s telephone number (614) 480-8300

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X] No [ ]

There were 231,105,691 shares of Registrant’s without par value common stock outstanding on October 31, 2004.

Huntington Bancshares Incorporated

INDEX


Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 2004, December 31, 2003, and September 30, 2003			3
Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2004 and 2003			4
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2004 and 2003			5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003			6
Notes to Unaudited Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3. Quantitative and Qualitative Disclosures about Market Risk			77
Item 4. Controls and Procedures			77
Part II. Other Information
Item 2. Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities			78
Item 6. Exhibits and Reports on Form 8-K			78
Signatures			80
Exhibit 10(A)
Exhibit 10(B)
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Part 1. Financial Information

Item 1. Financial Statements

Huntington Bancshares Incorporated

Condensed Consolidated Balance Sheets


	September 30,			December 31,			September 30,
(in thousands, except number of shares)	2004			2003			2003
	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	1,053,358		$	899,689		$	775,423
Federal funds sold and securities purchased under resale agreements		838,833			96,814			87,196
Interest bearing deposits in banks		36,155			33,627			37,857
Trading account securities		120,334			7,589			415
Loans held for sale		205,913			226,729			411,792
Investment securities		4,150,044			4,929,060			4,283,475
Loans and leases		22,587,259			21,075,118			21,172,747
Allowance for loan and lease losses		(282,650	)		(299,732	)		(336,398	)

Net loans and leases		22,304,609			20,775,386			20,836,349

Operating lease assets		717,411			1,260,440			1,454,590
Bank owned life insurance		954,911			927,671			917,261
Premises and equipment		356,438			349,712			338,863
Goodwill and other intangible assets		216,011			217,009			217,212
Customers’ acceptance liability		8,787			9,553			9,208
Accrued income and other assets		844,689			786,047			759,282

Total Assets	$	31,807,493		$	30,519,326		$	30,128,923

Liabilities
Deposits	$	20,109,025		$	18,487,395		$	18,833,856
Short-term borrowings		1,215,887			1,452,304			1,400,047
Federal Home Loan Bank advances		1,270,454			1,273,000			1,273,000
Other long-term debt		4,094,185			4,544,509			4,269,288
Subordinated notes		1,040,901			990,470			791,045
Allowance for unfunded loan commitments and letters of credit		30,007			35,522			33,737
Bank acceptances outstanding		8,787			9,553			9,208
Accrued expenses and other liabilities		1,577,330			1,451,571			1,277,286

Total Liabilities		29,346,576			28,244,324			27,887,467

Shareholders’ Equity
Preferred stock — authorized 6,617,808 shares; none outstanding		—			—			—
Common stock — without par value; authorized 500,000,000 shares; issued 257,866,255 shares; outstanding 230,153,486; 229,008,088 and 228,869,936 shares, respectively		2,482,904			2,483,542			2,482,370
Less 27,712,769; 28,858,167 and 28,996,319 treasury shares, respectively		(526,967	)		(548,576	)		(550,766	)
Accumulated other comprehensive income (loss)		(13,812	)		2,678			25,865
Retained earnings		518,792			337,358			283,987

Total Shareholders’ Equity		2,460,917			2,275,002			2,241,456

Total Liabilities and Shareholders’ Equity	$	31,807,493		$	30,519,326		$	30,128,923

See notes to unaudited condensed consolidated financial statements

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Income
(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2004			2003			2004			2003
Interest and fee income
Loans and leases
Taxable	$	284,790		$	277,906		$	823,562		$	813,845
Tax-exempt		474			588			1,423			1,997
Securities
Taxable		38,987			36,311			127,059			110,450
Tax-exempt		7,032			6,199			21,792			16,171
Other		6,719			12,316			14,264			28,196

Total Interest Income		338,002			333,320			988,100			970,659

Interest expenses
Deposits		64,812			67,565			183,810			223,658
Short-term borrowings		3,121			2,992			9,222			12,864
Federal Home Loan Bank advances		8,426			5,883			24,565			17,102
Subordinated notes and other long-term debt including preferred capital securities		34,585			36,409			98,197			92,364

Total Interest Expense		110,944			112,849			315,794			345,988

Net Interest Income		227,058			220,471			672,306			624,671
Provision for credit losses		11,785			51,615			42,408			137,652

Net Interest Income After Provision for Credit Losses		215,273			168,856			629,898			487,019

Operating lease income		64,412			117,624			231,985			384,391
Service charges on deposit accounts		43,935			42,294			129,368			123,077
Trust services		17,064			15,365			50,095			45,856
Brokerage and insurance income		13,200			13,807			41,920			43,500
Mortgage banking		4,448			30,193			23,474			48,503
Bank owned life insurance income		10,019			10,438			31,813			32,618
Other service charges and fees		10,799			10,499			30,957			32,209
Gain on sales of automobile loans		312			—			14,206			23,751
Gain on sale of branch offices		—			13,112			—			13,112
Securities gains (losses)		7,803			(4,107	)		13,663			3,978
Other		17,899			23,543			68,177			71,648

Total Non-Interest Income		189,891			272,768			635,658			822,643

Personnel costs		121,729			113,170			363,068			331,501
Operating lease expense		54,885			93,134			188,158			307,661
Outside data processing and other services		17,527			17,478			53,552			50,161
Equipment		15,295			16,328			47,609			49,081
Net occupancy		16,838			15,570			49,859			47,556
Professional services		12,219			11,116			27,354			30,273
Marketing		5,000			5,515			20,908			20,595
Telecommunications		5,359			5,612			15,191			16,707
Printing and supplies		3,201			3,658			9,315			9,592
Amortization of intangibles		204			204			612			612
Restructuring reserve releases		(1,151	)		—			(1,151	)		(6,315	)
Other		22,317			18,397			66,755			55,270

Total Non-Interest Expense		273,423			300,182			841,230			912,694

Income Before Income Taxes		131,741			141,442			424,326			396,968
Provision for income taxes		38,255			37,230			116,540			104,536

Income before cumulative effect of change in accounting principle		93,486			104,212			307,786			292,432
Cumulative effect of change in accounting principle, net of tax		—			(13,330	)		—			(13,330	)

Net Income	$	93,486		$	90,882		$	307,786		$	279,102

Average common shares — diluted		234,348			230,966			233,307			231,353
Per Common Share:
Income before cumulative effect of change in accounting principle — Diluted	$	0.40		$	0.45		$	1.32		$	1.26
Net Income — Diluted		0.40			0.39			1.32			1.21
Cash Dividends Declared		0.200			0.175			0.550			0.495

See notes to unaudited condensed consolidated financial statements

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Changes in Shareholders’ Equity


												Accumulated
	Common Stock					Treasury Shares						Other Comprehensive			Retained
(in thousands)	Shares		Amount			Shares			Amount			Income			Earnings			Total
Nine Months Ended September 30, 2003 *(Unaudited)* :
Balance, beginning of period		257,866	$	2,484,421			(24,987	)	$	(475,399	)	$	62,300		$	118,471		$	2,189,793
Comprehensive Income:
Net income																279,102			279,102
Unrealized net holding losses on securities available for sale arising during the period, net of reclassification adjustment for net gains included in net income													(26,233	)					(26,233	)
Unrealized losses on derivative instruments used in cash flow hedging relationships													(10,202	)					(10,202	)

Total comprehensive income																			242,667

Cash dividends declared ($0.495 per share)																(113,586	)		(113,586	)
Stock options exercised				(2,144	)		337			6,373									4,229
Treasury shares purchased							(4,300	)		(81,061	)								(81,061	)
Other				93			(46	)		(679	)								(586	)

Balance, end of period ( Unaudited )		257,866	$	2,482,370			(28,996	)	$	(550,766	)	$	25,865		$	283,987		$	2,241,456

Nine Months Ended September 30, 2004 *(Unaudited)* :
Balance, beginning of period		257,866	$	2,483,542			(28,858	)	$	(548,576	)	$	2,678		$	337,358		$	2,275,002
Comprehensive Income:
Net income																307,786			307,786
Unrealized net holding losses on securities available for sale arising during the period, net of reclassification adjustment for net gains included in net income													(19,555	)					(19,555	)
Unrealized gains on derivative instruments used in cash flow hedging relationships													3,065						3,065

Total comprehensive income																			291,296

Cash dividends declared ($0.550 per share)																(126,352	)		(126,352	)
Stock options exercised				(564	)		985			18,865									18,301
Other				(74	)		160			2,744									2,670

Balance, end of period ( *Unaudited* )		257,866	$	2,482,904			(27,713	)	$	(526,967	)	$	(13,812	)	$	518,792		$	2,460,917

See notes to unaudited consolidated financial statements.

Huntington Bancshares Incorporated

Condensed Consolidated Statements of Cash Flows
(Unaudited)


	Nine Months Ended
	September 30,
(in thousands)	2004			2003
Operating Activities
Net Income	$	307,786		$	279,102
Adjustments to reconcile net income to net cash provided by operating activities
Cumulative effect of change in accounting principle, net of tax		—			13,330
Provision for credit losses		42,408			137,652
Depreciation on operating lease assets		187,022			290,474
Other depreciation and amortization		65,279			73,855
Deferred income tax expense		83,140			78,754
Increase in trading account securities		(112,745	)		(174	)
Decrease in loans held for sale		20,566			116,587
Gains on sales of investment securities		(13,663	)		(3,978	)
Gains on sale of automobile loans		(14,206	)		(23,751	)
Gains on sale of branch offices		—			(13,112	)
Restructuring reserve releases		(1,151	)		(6,315	)
Other, net		(40,099	)		(155,245	)

Net Cash Provided by Operating Activities		524,337			787,179

Investing Activities
Increase in interest bearing deposits in banks		(2,528	)		(557	)
Proceeds from:
Maturities and calls of investment securities		746,386			1,343,838
Sales of investment securities		1,655,459			887,936
Purchases of investment securities		(1,530,657	)		(3,140,336	)
Proceeds from sales/securitizations of loans		1,534,395			1,475,948
Net loan and lease originations, excluding sales		(3,216,666	)		(3,457,605	)
Net decrease in operating lease assets		357,184			473,727
Sale of branch offices		—			(81,367	)
Proceeds from sale of premises and equipment		340			6,825
Purchases of premises and equipment		(43,924	)		(44,076	)
Proceeds from sales of other real estate		9,800			6,997
Consolidation of cash of securitization trust		—			58,500

Net Cash Used for Investing Activities		(490,211	)		(2,470,170	)

Financing Activities
Increase in total deposits		1,610,167			1,525,808
Decrease in short-term borrowings		(236,417	)		(740,969	)
Proceeds from issuance of subordinated notes		148,830			—
Maturity of subordinated notes		(100,000	)		(250,000	)
Proceeds from Federal Home Loan Bank advances		454			270,000
Maturity of Federal Home Loan Bank advances		(3,000	)		(10,000	)
Proceeds from long-term debt		675,000			1,450,000
Maturity of long-term debt		(1,130,000	)		(530,000	)
Dividends paid on common stock		(121,773	)		(111,007	)
Repurchases of common stock		—			(81,061	)
Net proceeds from issuance of common stock		18,301			4,076

Net Cash Provided by Financing Activities		861,562			1,526,847

Change in Cash and Cash Equivalents		895,688			(156,144	)
Cash and Cash Equivalents at Beginning of Period		996,503			1,018,763

Cash and Cash Equivalents at End of Period	$	1,892,191		$	862,619

Supplemental disclosures:
Income taxes paid	$	14,031		$	70,953
Interest paid		302,801			354,071
Non-cash activities
Residential mortgage loans securitized and retained in securities available for sale		115,929			171,586
Common stock dividends accrued not paid		36,254			30,901

See notes to unaudited condensed consolidated financial statements.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Huntington Bancshares Incorporated (Huntington) reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of Management, necessary for a fair presentation of the consolidated financial position, the results of operations, and cash flows for the periods presented. These unaudited condensed consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission (SEC) and, therefore, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted. The Notes to the Consolidated Financial Statements appearing in Huntington’s 2003 Annual Report on Form 10-K (2003 Form 10-K), which include descriptions of significant accounting policies, as updated by the information contained in this report, should be read in conjunction with these interim financial statements.

Certain amounts in the prior year’s financial statements have been reclassified to conform to the 2004 presentation.

For statement of cash flows purposes, cash and cash equivalents are defined as the sum of “Cash and due from banks” and “Federal funds sold and securities purchased under resale agreements.” The statement of cash flows for the nine-months ended September 30, 2003, has been corrected to properly reflect the sale of branch offices during the third quarter of 2003.

Note 2 – New Accounting Pronouncements

Emerging Issues Task Force Issue No. 03-1, The Meaning of Other-Than-Temporary Impairments and Its Application to Certain Investments (EITF 03-1): The Emerging Issues Task Force reached a consensus about the criteria that should be used to determine when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. EITF 03-1 also included accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. On September 30, 2004, the FASB issued FSP 03-1-1 which delayed the effective date for the measurement and recognition guidance contained in paragraphs 10–20 of Issue 03-1 due to additional proposed guidance expected to be finalized in the fourth quarter of 2004.

At September 30, 2004, Huntington had $2.5 billion of debt securities with current market values less than their amortized cost. These debt securities had an aggregate unrealized loss of $32.7 million at September 30, 2004. None of these securities were equity securities or debt securities that can contractually be prepaid or otherwise settled in such a way that Huntington would not recover substantially all of its cost. At September 30, 2004, a total of $26.8 million of these debt securities had market values that were 5% or more below their amortized cost. The aggregate unrealized loss for these securities was $1.5 million. The declines in value are the result of interest rate fluctuations and Huntington believes the declines are temporary; therefore, no impairment loss has been recorded except as described in the paragraph below. Until the final FSP 03-1-1 is finalized, Huntington cannot determine the impact that the proposed guidance might have on the financial statements.

At September 30, 2004, Management made a decision, to sell $11 million of equity securities, with unrealized losses of $0.9 million. Consequently, Huntington recognized the unrealized losses in the third quarter of 2004.

Emerging Issues Task Force Issue No. 03-16, Accounting for Investment in Limited Liability Companies (EITF 03-16): The Task Force reached a consensus that an investment in a limited liability company (LLC) that maintains a “specific ownership account” for each investor should be viewed as similar to an investment in a limited partnership for purposes of determining whether a noncontrolling investment in a LLC should be accounted for using the cost method or the equity method. The current rules require a noncontrolling investment in a limited partnership to be accounted for under the equity method unless the interest is so minor that the limited partner may have virtually no influence over the partnership operating and financial policies. The guidance for evaluating an investment in a LLC should be applied for reporting periods beginning after June 15, 2004. The impact of EITF 03-16 was not material to Huntington’s financial condition, results of operations, or cash flows.

SEC Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments (SAB 105): On March 9, 2004, the SEC issued SAB 105, which summarizes the views of the SEC staff regarding the application of

generally accepted accounting principles to loan commitments accounted for as derivative instruments. Specifically, SAB 105 indicated that the fair value of loan commitments that are required to follow derivative accounting under FAS 133, Accounting for Derivative Instruments and Hedging Activities , should not consider the expected future cash flows related to the associated servicing of the future loan. Prior to SAB 105, Huntington did not consider the expected future cash flows related to the associated servicing in determining the fair value of loan commitments. The adoption of SAB 105 did not have a material effect on Huntington’s financial results.

FASB Staff Position No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (FSP 106-2): In December 2003, a law was approved that expands Medicare benefits, primarily adding a prescription drug benefit for Medicare-eligible retirees beginning in 2006. The law also provides a federal subsidy to companies that sponsor postretirement benefit plans providing prescription drug coverage. FSP 106-2 was issued in May 2004 and supersedes FSP 106-1 issued in January 2004. FSP 106-2 specifies that any Medicare subsidy must be taken into account in measuring the employer’s postretirement health care benefit obligation and will also reduce the net periodic postretirement cost in future periods. The new guidance is effective for the reporting periods beginning on or after June 15, 2004. The impact of this new pronouncement was not material to Huntington’s financial condition, results of operations, or cash flows.

AICPA Statement of Position No. 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3): In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP 03-3 to address accounting for differences between the contractual cash flows of certain loans and debt securities and the cash flows expected to be collected when loans or debt securities are acquired in a transfer and those cash flow differences are attributable, at least in part, to credit quality. As such, SOP 03-3 applies to loans and debt securities purchased or acquired in purchase business combinations and does not apply to originated loans. The application of SOP 03-3 limits the interest income, including accretion of purchase price discounts, that may be recognized for certain loans and debt securities. Additionally, SOP 03-3 requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield or valuation allowance, such as the allowance for credit losses. Subsequent to the initial investment, increases in expected cash flows generally should be recognized prospectively through adjustment of the yield on the loan or debt security over its remaining life. Decreases in expected cash flows should be recognized as impairment. SOP 03-3 is effective for loans and debt securities acquired in fiscal years beginning after December 15, 2004, with early application encouraged. The impact of this new pronouncement is not expected to be material to Huntington’s financial condition, results of operations, or cash flows.

Note 3 – Securities and Exchange Commission Investigation

As previously disclosed, Huntington continues to have ongoing discussions with the staff of the Securities and Exchange Commission (SEC) regarding resolution of its formal investigation into certain financial accounting matters relating to fiscal years 2002 and earlier and certain related disclosure matters. It is anticipated that a settlement of this matter will involve the entry of an order by the SEC requiring Huntington to comply with various provisions of the Securities Exchange Act of 1934 and the Securities Act of 1933, along with the imposition of a civil money penalty. No assurances, however, can be provided as to the ultimate timing or outcome of this matter pending a final settlement.

Note 4 – Formal Supervisory Agreements and Impact on Pending Acquisition

On November 3, 2004, Huntington announced that it expects to enter into formal supervisory agreements with its banking regulators, the Federal Reserve and the Office of the Controller of the Currency, providing for a comprehensive action plan designed to address its financial reporting and accounting policies, procedures, and controls and its corporate governance practices. Huntington remains in active dialogue with banking regulators concerning these and related matters and is working diligently to resolve this in a full and comprehensive manner.

On January 27, 2004, Huntington announced the signing of a definitive agreement to acquire Unizan Financial Corp. (Unizan), a financial holding company based in Canton, Ohio, with $2.7 billion of assets at December 31, 2003. Under the terms of the agreement, Unizan shareholders would receive 1.1424 shares of Huntington common stock, on a tax-free basis, for each share of Unizan.

As part of its November 3, 2004, announcement, Huntington indicated that it is negotiating a one-year extension of its merger agreement with Unizan. Huntington intends to withdraw its current application with the Federal Reserve to acquire Unizan and to resubmit the application for regulatory approval of the merger once it has successfully resolved the aforementioned regulatory concerns.

Huntington believes that it will be able to address all of the issues that have been raised by its banking regulators and the SEC (see Note 3) concerning these matters in a comprehensive manner and is working aggressively to do so. No assurances, however, can be provided as to the ultimate timing or outcome of these matters.

Note 5 – Stock Repurchase Plan

Effective April 27, 2004, the board of directors authorized a new share repurchase program (the 2004 Repurchase Program) which cancelled the 2003 Repurchase Program and authorized Management to repurchase not more than 7,500,000 shares of Huntington common stock. Purchases will be made from time-to-time in the open market or through privately negotiated transactions depending on market conditions. As of September 30, 2004, there have been no
share repurchases made under the 2004 Repurchase Program.

Note 6 – Operating Lease Assets

Operating lease assets at September 30, 2004, December 31, 2003, and September 30, 2003, were as follows:


	September 30,			December 31,			September 30,
(in thousands)	2004			2003			2003
Cost of assets under operating leases	$	1,368,787		$	2,136,502		$	2,416,907
Deferred lease origination fees and costs		(939	)		(2,117	)		(40,220	)
Accumulated depreciation		(650,437	)		(873,945	)		(922,097	)

Operating Lease Assets, Net	$	717,411		$	1,260,440		$	1,454,590

Depreciation related to operating lease assets was $54.6 million and $86.5 million for the three months ended September 30, 2004 and 2003, respectively. For the respective nine-month periods, depreciation was $187.0 million and $290.5 million.

Note 7 – Investment Securities

Listed below are the contractual maturities (under 1 year, 1-5 years, 6-10 years and over 10 years) of investment securities at September 30, 2004, December 31, 2003, and September 30, 2003:


	September 30, 2004				December 31, 2003				September 30, 2003
	Amortized				Amortized				Amortized
(in thousands of dollars)	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
U.S. Treasury
Under 1 year	$	—	$	—	$	1,374	$	1,376	$	325	$	329
1-5 years		24,230		24,551		31,356		31,454		32,855		33,611
6-10 years		754		842		271,271		275,540		270,529		281,343
Over 10 years		—		—		—		—		—		—

Total U.S. Treasury		24,984		25,393		304,001		308,370		303,709		315,283

Federal Agencies
Mortgage-backed securities
1-5 years		2,773		2,831		19,899		20,434		21,289		21,931
6-10 years		100,827		101,157		198,755		201,995		235,180		239,766
Over 10 years		939,050		929,892		1,593,139		1,595,594		1,594,938		1,607,969

Total Mortgage-Backed		1,042,650		1,033,880		1,811,793		1,818,023		1,851,407		1,869,666

Other Agencies
Under 1 year		499		510		173,181		175,505		193,091		197,357
1-5 years		564,302		562,705		585,561		593,662		389,418		403,841
6-10 years		317,312		307,070		403,953		390,164		404,776		398,626
Over 10 years		—		—		201		192		—		—

Total Other Agencies		882,113		870,285		1,162,896		1,159,523		987,285		999,824

Total U.S Treasury and Federal Agencies		1,949,747		1,929,558		3,278,690		3,285,916		3,142,401		3,184,773

Municipal Securities
Under 1 year		7,180		7,199		7,989		8,058		8,345		8,414
1-5 years		9,396		9,596		21,706		22,260		27,056		27,804
6-10 years		86,677		87,788		70,253		71,755		46,521		47,408
Over 10 years		293,322		297,519		332,181		334,188		316,469		316,552

Total Municipal Securities		396,575		402,102		432,129		436,261		398,391		400,178

Private Label CMO
Under 1 year		—		—		1,973		1,973		—		—
1-5 years		—		—		—		—		—		—
6-10 years		—		—		—		—		—		—
Over 10 years		564,084		560,563		388,933		388,684		192,869		193,149

Total Private Label CMO		564,084		560,563		390,906		390,657		192,869		193,149

Asset Backed Securities
Under 1 year		—		—		—		—		—		—
1-5 years		30,000		29,944		30,000		29,944		30,000		29,944
6-10 years		9,725		9,838		20,000		19,984		20,000		19,839
Over 10 years		1,051,982		1,053,020		590,826		589,788		278,498		277,977

Total Asset Backed Securities		1,091,707		1,092,802		640,826		639,716		328,498		327,760

Other
Under 1 year		1,601		1,612		500		502		1,490		1,497
1-5 years		9,612		9,968		7,169		7,346		9,327		9,772
6-10 years		2,253		2,351		5,047		5,510		4,045		4,422
Over 10 years		144,201		144,707		145,103		146,685		141,901		143,436
Retained interest in securitizations		—		—		5,593		6,356		5,671		5,960
Marketable equity securities		5,965		6,381		8,547		10,111		11,529		12,528

Total Other		163,632		165,019		171,959		176,510		173,963		177,615

Total Investment Securities	$	4,165,745	$	4,150,044	$	4,914,510	$	4,929,060	$	4,236,122	$	4,283,475

The growth in the Asset Backed Securities from year-end and the year-ago quarter primarily consisted of over 10-year variable-rate securities.

Note 8 – Segment Reporting

Huntington has three distinct lines of business: Regional Banking, Dealer Sales, and the Private Financial Group (PFG). A fourth segment includes the company’s Treasury functions and capital markets activities and other unallocated assets, liabilities, revenue, and expense. Lines of business results are determined based upon the company’s management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around Huntington’s organizational and management structure and, accordingly, the results below are not necessarily comparable with similar information published by other financial institutions. A description of each segment and discussion of financial results is provided below.

Regional Banking: This segment provides products and services to retail, business banking, and commercial customers. These products and services are offered in seven operating regions within the five states of Ohio, Michigan, West Virginia, Indiana, and Kentucky through the company’s traditional banking network. Each region is further divided into Retail and Commercial Banking units. Retail products and services include home equity loans and lines of credit, first mortgage loans, direct installment loans, business loans, personal and business deposit products, as well as sales of investment and insurance services. Retail products and services comprise 59% and 80% of total Regional Banking loans and deposits, respectively. These products and services are delivered to customers through banking offices, ATMs, Direct Bank—Huntington’s customer service center, and Web Bank at huntington.com. Commercial banking serves middle-market and commercial banking relationships, which use a variety of banking products and services including commercial loans, international trade, cash management, leasing, interest rate protection products, capital market alternatives, 401(k) plans, and mezzanine investment capabilities.

Dealer Sales: This segment serves over 3,500 automotive dealerships within Huntington’s primary banking markets as well as in Arizona, Florida, Georgia, Pennsylvania, and Tennessee. The segment finances the purchase of automobiles by consumers of the automotive dealerships, purchases automobiles from dealers and simultaneously leases the automobiles under long-term direct financing leases to consumers, finances dealership floor plan inventories, real estate, or working capital needs, and provides other banking services to the automotive dealerships and their owners.

Private Financial Group: This segment provides products and services designed to meet the needs of the company’s higher net worth customers. Revenue is derived through trust, asset management, investment advisory, brokerage, insurance, and private banking products and services.

Treasury/Other: This segment includes revenue and expense related to assets, liabilities, and equity that are not directly assigned or allocated to one of the other three business segments. Assets included in this segment include investment securities, bank owned life insurance, and mezzanine loans originated through Huntington Capital Markets. A match-funded transfer pricing system is used to attribute appropriate interest income and interest expense to other business segments. This segment includes the net impact of interest rate risk management, including derivative activities. Furthermore, this segment’s results include the earnings from the company’s investment securities portfolios and capital markets activities. Additionally, income or expense and provision for income taxes, not allocated to other business segments, are also included.

Use of Operating Earnings to Measure Segment Performance

Management uses earnings on an operating basis, rather than on a GAAP basis, to measure underlying performance trends for each business segment. Analyzing earnings on an operating basis is very helpful in assessing underlying performance trends, a critical factor used by Management to determine the success of strategies and future earnings capabilities. Operating earnings represent GAAP earnings adjusted to exclude the impact of the significant items listed in the reconciliation table below. See Note 12 for further discussions regarding Restructuring Reserves.

Listed below is certain reported financial information reconciled to Huntington’s three and nine month 2004 and 2003 operating results by line of business.


	Three Months Ended September 30,
Income Statements	Regional			Dealer						Treasury/			Huntington
(in thousands)	Banking			Sales			PFG			Other			Consolidated
2004
Net interest income	$	163,147		$	37,376		$	11,715		$	14,820		$	227,058
Provision for credit losses		(5,086	)		(6,100	)		(72	)		(527	)		(11,785	)
Non-Interest income		77,256			73,145			27,588			11,902			189,891
Non-Interest expense		(144,423	)		(77,149	)		(27,083	)		(24,768	)		(273,423	)
Provision for income taxes		(31,813	)		(9,545	)		(4,252	)		7,355			(38,255	)

Net income, as reported		59,081			17,727			7,896			8,782			93,486
Gain on sale of automobile loans, net of tax		—			(384	)		—			181			(203	)
Restructuring releases, net of taxes		—			—			—			(748	)		(748	)

Operating Earnings	$	59,081		$	17,343		$	7,896		$	8,215		$	92,535

2003
Net interest income	$	160,973		$	29,236		$	11,085		$	19,177		$	220,471
Provision for credit losses		(32,537	)		(16,036	)		(2,415	)		(627	)		(51,615	)
Non-Interest income		97,772			125,536			25,815			23,645			272,768
Non-Interest expense		(141,422	)		(115,006	)		(26,092	)		(17,662	)		(300,182	)
Provision for income taxes		(29,675	)		(8,306	)		(2,938	)		3,689			(37,230	)

Income before cumulative effect of change in accounting principle		55,111			15,424			5,455			28,222			104,212
Cumulative effect of change in accounting principle, net of tax		—			(10,888	)		—			(2,442	)		(13,330	)

Net income, as reported		55,111			4,536			5,455			25,780			90,882
Cumulative effect of change in accounting principle, net of tax		—			10,888			—			2,442			13,330
Gain on sale of branch offices, net of tax		—			—			—			(8,523	)		(8,523	)

Operating Earnings	$	55,111		$	15,424		$	5,455		$	19,699		$	95,689


	Nine Months Ended September 30,
Income Statements	Regional			Dealer						Treasury/			Huntington
(in thousands)	Banking			Sales			PFG			Other			Consolidated
2004
Net interest income	$	469,292		$	111,267		$	34,010		$	57,737		$	672,306
Provision for credit losses		(3,242	)		(36,016	)		(169	)		(2,981	)		(42,408	)
Non-Interest income		231,782			269,683			83,895			50,298			635,658
Non-Interest expense		(439,515	)		(254,286	)		(85,103	)		(62,326	)		(841,230	)
Provision for income taxes		(90,411	)		(31,727	)		(11,422	)		17,020			(116,540	)

Net income, as reported		167,906			58,921			21,211			59,748			307,786
Gain on sale of automobile loans, net of tax		—			(8,598	)		—			(636	)		(9,234	)
Restructuring releases, net of taxes		—			—			—			(748	)		(748	)

Operating Earnings	$	167,906		$	50,323		$	21,211		$	58,364		$	297,804

2003
Net interest income	$	457,805		$	56,522		$	30,365		$	79,979		$	624,671
Provision for credit losses		(96,615	)		(36,612	)		(3,858	)		(567	)		(137,652	)
Non-Interest income		241,161			437,355			80,878			63,249			822,643
Non-Interest expense		(425,045	)		(374,639	)		(78,613	)		(34,397	)		(912,694	)
Provision for income taxes		(62,057	)		(28,920	)		(10,071	)		(3,488	)		(104,536	)

Income before cumulative effect of change in accounting principle		115,249			53,706			18,701			104,776			292,432
Cumulative effect of change in accounting principle, net of tax		—			(10,888	)		—			(2,442	)		(13,330	)

Net income, as reported		115,249			42,818			18,701			102,334			279,102
Cumulative effect of change in accounting principle, net of tax		—			10,888			—			2,442			13,330
Gain on sale of automobile loans, net of tax		—			(4,807	)		—			(10,631	)		(15,438	)
Gain on sale of branch offices, net of tax		—			—			—			(8,523	)		(8,523	)
Restructuring releases, net of taxes		—			—			—			(4,105	)		(4,105	)

Operating Earnings	$	115,249		$	48,899		$	18,701		$	81,517		$	264,366


	Total Assets at						Total Deposits at
Period-end Balance Sheet Data	September 30,		December 31,		September 30,		September 30,		December 31,		September 30,
(in millions)	2004		2003		2003		2004		2003		2003
Regional Banking	$	17,199	$	14,971	$	14,974	$	16,931	$	15,539	$	15,671
Dealer Sales		5,957		7,335		7,859		70		77		66
PFG		1,558		1,461		1,421		1,125		1,164		1,118
Treasury / Other		7,093		6,752		5,875		1,983		1,707		1,979

Total	$	31,807	$	30,519	$	30,129	$	20,109	$	18,487	$	18,834

Note 9 – Comprehensive Income

The components of Huntington’s Other Comprehensive Income in the three and nine months ended September 30 were as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2004			2003			2004			2003
Unrealized holding (losses) gains on securities available for sale arising during the period:
Unrealized net gains (losses)	$	58,167		$	(37,796	)	$	(16,588	)	$	(35,997	)
Related tax (expense) benefit		(20,484	)		13,284			5,914			12,350

Net		37,683			(24,512	)		(10,674	)		(23,647	)

Less: Reclassification adjustment for net gains (losses) included in net income
Realized net gains (losses)		7,803			(4,107	)		13,663			3,978
Related tax (expense) benefit		(2,731	)		1,437			(4,782	)		(1,392	)

Net		5,072			(2,670	)		8,881			2,586

Total unrealized holding gains (losses) on securities available for sale arising during the period, net of reclassification adjustment for net gains included in net income		32,611			(21,842	)		(19,555	)		(26,233	)

Unrealized (losses) gains on derivatives used in cash flow hedging relationships arising during the period:
Unrealized net (losses) gains		(29,568	)		10,600			4,715			(15,695	)
Related tax benefit (expense)		10,349			(3,710	)		(1,650	)		5,493

Net		(19,219	)		6,890			3,065			(10,202	)

Total Other Comprehensive Income (Loss)	$	13,392		$	(14,952	)	$	(16,490	)	$	(36,435	)

Activity in Accumulated Other Comprehensive Income for the nine months ended September 30, 2004 and 2003 was as follows:


							Unrealized gains
							(losses) on derivative
				Unrealized gains			instruments used in
	Minimum pension			(losses) on securities			cash flow hedging
(in thousands)	liability			available for sale			relationships			Total
Balance, December 31, 2002	$	(195	)	$	56,856		$	5,639		$	62,300
Period change		—			(26,233	)		(10,202	)		(36,435	)

Balance, September 30, 2003	$	(195	)	$	30,623		$	(4,563	)	$	25,865

Balance, December 31, 2003	$	(1,309	)	$	9,429		$	(5,442	)	$	2,678
Period change		—			(19,555	)		3,065			(16,490	)

Balance, September 30, 2004	$	(1,309	)	$	(10,126	)	$	(2,377	)	$	(13,812	)

Note 10 – Earnings per Share

Basic earnings per share is the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period adjusted for the potential issuance of common shares upon the exercise of stock options. The calculation of basic and diluted earnings per share for each of the three and nine months ended September 30 is as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share amount)	2004		2003		2004		2003
Income Before Cumulative Effect of Change in Accounting Principle	$	93,486	$	104,212	$	307,786	$	292,432
Net Income	$	93,486	$	90,882	$	307,786	$	279,102
Average common shares outstanding		229,848		228,715		229,501		229,558
Dilutive effect of common stock equivalents		4,500		2,251		3,806		1,795

Diluted Average Common Shares Outstanding		234,348		230,966		233,307		231,353

Earnings Per Share
Basic
Income before cumulative effect of change in accounting principle	$	0.41	$	0.46	$	1.34	$	1.27
Net Income		0.41		0.40		1.34		1.22
Diluted
Income before cumulative effect of change in accounting principle		0.40		0.45		1.32		1.26
Net Income		0.40		0.39		1.32		1.21

The average market price of Huntington’s common stock for the period was used in determining the dilutive effect of outstanding stock options. Common stock equivalents are computed based on the number of shares subject to stock options that have an exercise price less than the average market price of Huntington’s common stock for the period.

Stock options for approximately 2.5 million and 6.4 million shares were vested and outstanding at September 30, 2004 and 2003, respectively, but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares for the period and, therefore, the effect would be antidilutive. The weighted average exercise price for these options was $27.04 per share and $23.19 per share at the end of the same respective periods.

On July 30, 2004, Huntington entered into an agreement with the former shareholders of LeaseNet, Inc. to issue in early 2005 up to 86,118 shares of Huntington common stock previously held in escrow subject to LeaseNet meeting certain contractual performance criteria. A total of 366,576 common shares, previously held in escrow, will be returned to Huntington. All shares in escrow had been accounted for as treasury stock.

On September 4, 2001, options totaling 3.2 million shares of common stock were granted to, with certain specified exceptions, full- and part-time employees under the Huntington Bancshares Incorporated Employee Stock Incentive Plan (the “Incentive Plan”). Under the terms of the Incentive Plan, these options were to vest on the earlier of September 4, 2006, or at such time as the closing price for Huntington’s common stock for five consecutive trading days reached or exceeded $25.00. Huntington’s common stock closing price exceeded $25.00 for each of the five consecutive trading days beginning October 1, 2004, and ending October 7, 2004. As a result, options for 2.0 million shares of common stock granted under the Incentive Plan, net of options for 1.2 million shares cancelled due to employee attrition, became fully vested and exercisable after the close of trading on October 7, 2004.

Note 11 – Stock-Based Compensation

Huntington’s stock-based compensation plans are accounted for based on the intrinsic value method promulgated by APB Opinion 25, Accounting for Stock Issued to Employees , and related interpretations. Compensation expense for employee stock options is generally not recognized if the exercise price of the option equals or exceeds the fair value of the stock on the date of grant.

The following pro forma disclosures for net income and earnings per diluted common share is presented as if Huntington had applied the fair value method of accounting of Statement No. 123 in measuring compensation costs for stock options. The fair values of the stock options granted were estimated using the Black-Scholes option-pricing model. This model assumes that the estimated fair value of the options is amortized over the options’ vesting periods and the compensation costs would be included in personnel expense on the income statement. The following table also includes the weighted-average assumptions that were used in the option-pricing model for options granted in each of the quarters presented:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Stock Options Outstanding at period end *(in thousands)*		21,572			20,361			21,572			20,361
Assumptions
Risk-free interest rate		3.78	%		4.49	%		3.78	%		4.36	%
Expected dividend yield		3.19			3.37			3.19			3.32
Expected volatility of Huntington’s common stock		30.9			33.8			30.9			33.8
Pro Forma Results *(in millions of dollars)*
Net income, as reported	$	93.5		$	90.9		$	307.8		$	279.1
Less pro forma expense, net of tax, related to options granted		3.7			3.5			10.1			9.4

Pro Forma Net Income	$	89.8		$	87.4		$	297.7		$	269.7

Net Income Per Common Share:
Basic, as reported	$	0.41		$	0.40		$	1.34		$	1.22
Basic, pro forma		0.39			0.38			1.30			1.17
Diluted, as reported		0.40			0.39			1.32			1.21
Diluted, pro forma		0.38			0.38			1.28			1.17

Note 12 – Restructuring Reserves

On a quarterly basis, Huntington assesses its remaining restructuring reserves, primarily related to lease obligations, and makes adjustments to those reserves as necessary. Based on these assessments, Huntington released $1.2 million in the third quarter of 2004. Huntington had remaining reserves for restructuring of $5.1 million, $9.7 million, and $8.7 million, as of September 30, 2004, December 31, 2003, and September 30, 2003, respectively. Huntington expects that the reserves will be adequate to fund the estimated future cash outlays.

Note 13 – Benefit Plans

Huntington sponsors the Huntington Bancshares Retirement Plan (the Plan), a non-contributory defined benefit pension plan covering substantially all employees. The Plan provides benefits based upon length of service and compensation levels. The funding policy of Huntington is to contribute an annual amount that is at least equal to the minimum funding requirements but not more than that deductible under the Internal Revenue Code. Although not required, Huntington made a discretionary contribution of $44.6 million to the Plan during the third quarter of 2004. In addition, Huntington has an unfunded, defined benefit post-retirement plan that provides certain healthcare and life insurance benefits to retired employees who have attained the age of 55 and have at least 10 years of vesting service under this plan. For any employee retiring on or after January 1, 1993, post-retirement healthcare benefits are based upon the employee’s number of months of service and are limited to the actual cost of coverage. Life insurance benefits are a percentage of the employee’s base salary at the time of retirement, with a maximum of $50,000 of coverage.

The following table shows the components of net periodic benefit expense:


	Pension Benefits						Post Retirement Benefits
	Three Months Ended						Three Months Ended
	September 30,						September 30,
(in thousands)	2004			2003			2004		2003
Service cost	$	3,040		$	2,454		$	326	$	280
Interest cost		4,371			4,162			802		870
Expected return on plan assets		(5,383	)		(6,285	)		—		—
Amortization of transition asset		—			(63	)		276		276
Amortization of prior service cost		—			—			146		151
Settlements		1,000			1,089			—		—
Recognized net actuarial loss		1,984			444			—		—

Benefit Expense	$	5,012		$	1,801		$	1,550	$	1,577


	Pension Benefits						Post Retirement Benefits
	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
(in thousands)	2004			2003			2004		2003
Service cost	$	9,118		$	7,363		$	976	$	841
Interest cost		13,112			12,485			2,406		2,609
Expected return on plan assets		(16,147	)		(18,853	)		—		—
Amortization of transition asset		—			(189	)		828		827
Amortization of prior service cost		—			—			437		454
Settlements		3,000			3,265			—		—
Recognized net actuarial loss		5,952			1,330			—		—

Benefit Expense	$	15,035		$	5,401		$	4,647	$	4,731

Huntington also sponsors other retirement plans. One of those plans is an unfunded Supplemental Executive Retirement Plan. This plan is a nonqualified plan that provides certain former officers of Huntington and its subsidiaries with defined pension benefits in excess of limits imposed by federal tax law. Other plans, including plans assumed in various past acquisitions, are unfunded, nonqualified plans that provide certain active and former officers of Huntington and its subsidiaries nominated by Huntington’s compensation committee with deferred compensation, post-employment, and/or defined pension benefits in excess of the qualified plan limits imposed by federal tax law.

Huntington has a 401(k) plan, which is a defined contribution plan that is available to eligible employees. Matching contributions by Huntington equal 100% on the first 3%, then 50% on the next 2%, of participant elective deferrals. The cost of providing this plan was $2.3 million and $2.1 million for the three months ended September 30, 2004 and 2003, respectively. For the respective nine-month periods, the cost was $7.0 million and $6.5 million.

Note 14 – Commitments and Contingent Liabilities

Commitments :

In the ordinary course of business, Huntington makes various commitments to extend credit that are not reflected in the financial statements. The contract amount of these financial agreements at September 30, 2004, December 31, 2003, and September 30, 2003, were as follows:

September 30,

December 31,

September 30,

(in millions)

2004

2003

Contract amount represents credit risk

Commitments to extend credit

Commercial

5,094

5,712

5,204

Consumer

3,898

3,652

3,488

Commercial real estate

483

952

927

Standby letters of credit

989

983

1,022

Commercial letters of credit

179

166

178

Commitments to extend credit generally have fixed expiration dates, are variable-rate, and contain clauses that permit Huntington to terminate or otherwise renegotiate the contracts in the event of a significant deterioration in the customer’s credit quality. These arrangements normally require the payment of a fee by the customer, the pricing of which is based on prevailing market conditions, credit quality, probability of funding, and other relevant factors. Since many of these commitments are expected to expire without being drawn upon, the contract amounts are not necessarily indicative of future cash requirements. The interest rate risk arising from these financial instruments is insignificant as a result of their predominantly short-term, variable-rate nature.

Commercial letters of credit represent short-term, self-liquidating instruments that facilitate customer trade transactions and generally have maturities of no longer than 90 days. The merchandise or cargo being traded normally secures these instruments.

Litigation:

In the ordinary course of business, there are various legal proceedings pending against Huntington and its subsidiaries. In the opinion of management, the aggregate liabilities, if any, arising from such proceedings are not expected to have a material adverse effect on Huntington’s consolidated financial position. (See also Note 3.)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

INTRODUCTION

Huntington Bancshares Incorporated (Huntington or the company) is a multi-state diversified financial holding company organized under Maryland law in 1966 and headquartered in Columbus, Ohio. Through its subsidiaries, Huntington is engaged in providing full-service commercial and consumer banking services, mortgage banking services, automobile financing, equipment leasing, investment management, trust services, and discount brokerage services, as well as reinsuring credit life and disability insurance, and selling other insurance and financial products and services. Huntington’s banking offices are located in Ohio, Michigan, West Virginia, Indiana, and Kentucky. Selected financial services are also conducted in other states including Arizona, Florida, Georgia, Maryland, New Jersey, Pennsylvania, and Tennessee. Huntington has a foreign office in the Cayman Islands and a foreign office in Hong Kong. The Huntington National Bank (the Bank), organized in 1866, is Huntington’s only bank subsidiary.

The following discussion and analysis provides investors and others with information that Management believes to be necessary for an understanding of Huntington’s financial condition, changes in financial condition, results of operations, and cash flows, and should be read in conjunction with the financial statements, notes, and other information contained in this report.

Forward-Looking Statements

This report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements about Huntington. These include descriptions of products or services, plans or objectives of Management for future operations, including pending acquisitions, and forecasts of revenues, earnings, cash flows, or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts.

By their nature, forward-looking statements are subject to numerous assumptions, risks, and uncertainties. A number of factors could cause actual conditions, events, or results to differ significantly from those described in the forward-looking statements. These factors include, but are not limited to, those set forth below and under the heading “Business Risks” included in Item 1 of Huntington’s Annual Report on Form 10-K for the year ended December 31, 2003 (2003 Form 10-K), and other factors described in this report and from time-to-time in other filings with the Securities and Exchange Commission.

Management encourages readers of this report to understand forward-looking statements to be strategic objectives rather than absolute forecasts of future performance. Forward-looking statements speak only as of the date they are made. Huntington assumes no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events.

Risk Factors

Huntington, like other financial companies, is subject to a number of risks, many of which are outside of Management’s control, though Management strives to manage those risks while optimizing returns. Among the risks assumed are: (1) credit risk, which is the risk that loan and lease customers or other counter parties will be unable to perform their contractual obligations, (2) market risk, which is the risk that changes in market rates and prices will adversely affect Huntington’s financial condition or results of operations, (3) liquidity risk, which is the risk that Huntington and / or the Bank will have insufficient cash or access to cash to meet operating needs, and (4) operational risk, which is the risk of loss resulting from inadequate or failed internal processes, people, or systems, or external events. The description of Huntington’s business contained in Item 1 of its 2003 Form 10-K, while not all inclusive, discusses a number of business risks that, in addition to the other information in this report, readers should carefully consider.

Formal Supervisory Agreements and Securities and Exchange Commission Investigation

On November 3, 2004, Huntington announced that it expects to enter into formal supervisory agreements with its banking regulators, the Federal Reserve and the Office of the Controller of the Currency, providing for a comprehensive action plan designed to address its financial reporting and accounting policies, procedures, and controls and its corporate governance practices. Huntington remains in active dialogue with its banking regulators concerning these and related matters.

acquire Unizan and to resubmit the application for regulatory approval of the merger once it has successfully resolved the aforementioned regulatory concerns.

Huntington’s Board of Directors has been overseeing a review of the Company’s financial accounting and reporting practices as they relate to the Company’s previous accounting restatements and other related matters during the course of the pending SEC formal investigation. It has recently engaged the Promontory Financial Group to provide assistance with respect to these and related regulatory matters.

Huntington believes that it will be able to address all of the issues that have been raised by the SEC and its banking regulators concerning these matters in a comprehensive manner and is working aggressively to do so. No assurances, however, can be provided as to the ultimate timing or outcome of these matters pending a final settlement.

Critical Accounting Policies and Use of Significant Estimates

Huntington’s 2003 Form 10-K lists Critical Accounting Policies and Use of Significant Estimates used in the development and presentation of its financial statements. These significant accounting policies, as well as the following discussion and analysis and other financial statement disclosures, identify and address key variables and other qualitative and quantitative factors that are necessary for an understanding and evaluation of Huntington, its financial position, results of operations, and cash flows.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires Huntington’s Management to establish critical accounting policies and make accounting estimates, assumptions, and judgments that affect amounts recorded and reported in its financial statements. An accounting estimate requires assumptions about uncertain matters that could have a material effect on the financial statements of Huntington if a different amount within a range of estimates were used or if estimates changed from period to period. Readers of this interim report should understand that estimates are made under facts and circumstances at a point in time and changes in those facts and circumstances could produce actual results that differ from when those estimates were made. Huntington’s Management has identified the most significant accounting estimates and their related application in Huntington’s 2003 Form 10-K.

SUMMARY DISCUSSION OF RESULTS

Earnings comparisons from the first nine-months of 2003 through the first nine-months of 2004, including comparisons of third quarter of 2003 with the third quarter of 2004 performance, were impacted by a number of factors, some related to changes in the economic and competitive environment, while others reflected specific Management strategies or changes in accounting practices. Understanding the nature and implications of these factors on financial results is important in understanding the company’s income statement, balance sheet, and credit quality trends and the comparison of the current quarter and year-to-date performance with comparable prior-year periods. The key factors impacting the current reporting period comparisons are more fully described in the Significant Factors Influencing Financial Performance Comparisons section, which follows the summary of results below.

2004 Third Quarter versus 2003 Third Quarter

Huntington’s 2004 third quarter earnings were $93.5 million, or $0.40 per common share, both up 3% from $90.9 million and $0.39 per common share in the year-ago quarter. This $2.6 million increase in earnings primarily reflected:

• $39.8 million, or 77%, reduction in the provision for credit losses, reflecting improved credit quality performance,

• $26.8 million, or 9%, reduction in non-interest expense, primarily due to a decline in operating lease expense,

• $6.9 million, or 3%, increase in fully taxable equivalent net interest income, reflecting the benefit of an increase in earning assets, primarily loans and leases, partially offset by a decline in the net interest margin, and

• $13.3 million cumulative effect of a change in accounting principle, net of tax, in the year-ago quarter.

Partially offset by:

• $82.9 million, or 30%, decline in non-interest income, reflecting declines in operating lease income, mortgage banking income, gains on sale of automobile loans, and gain on sale of West Virginia banking offices, partially

offset by higher investment securities gains, and

• $1.0 million, or 3%, increase in income tax expense, reflecting the impact of a higher effective tax rate.

The return on average assets (ROA) and return on average equity (ROE), were 1.18% and 15.4%, respectively, down from 1.38% and 18.5%, respectively, in the year-ago quarter (see Table 1).

2004 Third Quarter versus 2004 Second Quarter

Compared with 2004 second quarter net income of $110.1 million and $0.47 per common share, 2004 third quarter earnings and earnings per share were both down 15%. This $16.6 million decrease in earnings primarily reflected:

• $28.2 million, or 13%, decline in non-interest income, primarily due to declines in mortgage banking and operating lease income, partially offset by higher investment securities gains, and

• $6.8 million increase in the provision for credit losses, as the 2004 second quarter included the benefit of a $9.7 million one-time recovery on a single commercial (C&I) credit.

Partially offset by:

• $8.7 million, or 3%, decline in non-interest expense, primarily due to lower operating lease expense, and

• $4.4 million, or 2%, increase in fully taxable equivalent net interest income, reflecting the benefit of an increase in earning assets, primarily loans and leases, as well as a slight increase in the net interest margin,

• $5.1 million, or 12%, reduction in income tax expense, primarily as a result of the lower level of pre-tax income.

The ROA and ROE were 1.18% and 15.4%, respectively, in the current quarter, down from 1.41% and 19.1%, respectively, in the prior quarter (see Table 1).

2004 First Nine Months versus 2003 First Nine Months

Earnings for the first nine months of 2004 were $307.8 million, or $1.32 per common share, up 10% and 9%, respectively, from the comparable year-ago period earnings of $279.1 million or $1.21 per common share. This $28.7 million increase in earnings primarily reflected:

• $95.2 million, or 69%, reduction in the provision for credit losses, reflecting improved credit quality performance,

• $71.5 million, or 8%, reduction in non-interest expense, primarily due to a decline in operating lease expense, partially offset by higher personnel costs,

• $49.7 million, or 8%, increase in fully taxable equivalent net interest income, reflecting the benefit of an increase in earning assets, primarily loans and leases, partially offset by a decline in the net interest margin, and

• $13.3 million cumulative effect of a change in accounting principle, net of tax, in the year-ago period.

Partially offset by:

• $187.0 million, or 23%, decline in non-interest income, reflecting declines in operating lease income, mortgage banking income, and gains on sale of automobile loans and the absence of a gain on the sale of branch offices in the year-ago period, and

• $12.0 million, or 11%, increase in income tax expense, reflecting higher level of pre-tax income, as well as the impact of a slightly higher effective tax rate.

The ROA and ROE were 1.32% and 17.6%, respectively, in the current nine-month period, down slightly from 1.37% and 17.9%, respectively, in the comparable year-ago period (see Table 2).

Table 1 — Selected Quarterly Income Statement Data


	2004									2003						3Q04 vs 3Q03
(in thousands, except per share amounts)	Third			Second			First			Fourth			Third			$ Chg			% Chg
Interest Income	$	338,002		$	324,167		$	325,931		$	335,097		$	333,320		$	4,682			1.4	%
Interest Expense		110,944			101,604			103,246			110,782			112,849			(1,905	)		(1.7	)

Net Interest Income		227,058			222,563			222,685			224,315			220,471			6,587			3.0
Provision for credit losses		11,785			5,027			25,596			26,341			51,615			(39,830	)		(77.2	)

Net Interest Income After Provision for Credit Losses		215,273			217,536			197,089			197,974			168,856			46,417			27.5

Operating lease income		64,412			78,706			88,867			105,307			117,624			(53,212	)		(45.2	)
Service charges on deposit accounts		43,935			43,596			41,837			44,763			42,294			1,641			3.9
Trust services		17,064			16,708			16,323			15,793			15,365			1,699			11.1
Brokerage and insurance income		13,200			13,523			15,197			14,344			13,807			(607	)		(4.4	)
Mortgage banking		4,448			23,322			(4,296	)		9,677			30,193			(25,745	)		(85.3	)
Bank owned life insurance income		10,019			11,309			10,485			10,410			10,438			(419	)		(4.0	)
Other service charges and fees		10,799			10,645			9,513			9,237			10,499			300			2.9
Gain on sales of automobile loans		312			4,890			9,004			16,288			—			312			—
Gain on sale of branch offices		—			—			—			—			13,112			(13,112	)		N.M.
Securities gains (losses)		7,803			(9,230	)		15,090			1,280			(4,107	)		11,910			N.M.
Other		17,899			24,659			25,619			19,411			23,543			(5,644	)		(24.0	)

Total Non-Interest Income		189,891			218,128			227,639			246,510			272,768			(82,877	)		(30.4	)

Personnel costs		121,729			119,715			121,624			115,762			113,170			8,559			7.6
Operating lease expense		54,885			62,563			70,710			85,609			93,134			(38,249	)		(41.1	)
Outside data processing and other services		17,527			17,563			18,462			15,957			17,478			49			0.3
Equipment		15,295			16,228			16,086			16,840			16,328			(1,033	)		(6.3	)
Net occupancy		16,838			16,258			16,763			14,925			15,570			1,268			8.1
Professional services		12,219			7,836			7,299			12,175			11,116			1,103			9.9
Marketing		5,000			8,069			7,839			6,895			5,515			(515	)		(9.3	)
Telecommunications		5,359			4,638			5,194			5,272			5,612			(253	)		(4.5	)
Printing and supplies		3,201			3,098			3,016			3,417			3,658			(457	)		(12.5	)
Amortization of intangibles		204			204			204			204			204			—			—
Loss on early extinguishment of debt		—			—			—			15,250			—			—			—
Restructuring reserve releases		(1,151	)		—			—			(351	)		—			(1,151	)		—
Other		22,317			25,981			18,457			25,510			18,397			3,920			21.3

Total Non-Interest Expense		273,423			282,153			285,654			317,465			300,182			(26,759	)		(8.9	)

Income Before Income Taxes		131,741			153,511			139,074			127,019			141,442			(9,701	)		(6.9	)
Provision for income taxes		38,255			43,384			34,901			33,758			37,230			1,025			2.8

Income before cumulative effect of change in accounting principle		93,486			110,127			104,173			93,261			104,212			(10,726	)		(10.3	)
Cumulative effect of change in accounting principle, net of tax ⁽¹⁾		—			—			—			—			(13,330	)		13,330			N.M.

Net Income	$	93,486		$	110,127		$	104,173		$	93,261		$	90,882		$	2,604			2.9	%

Average common shares - diluted		234,348			232,659			232,915			231,986			230,966			3,382			1.5	%
Per Common Share:
Income before cumulative effect of change in accounting principle - Diluted	$	0.40		$	0.47		$	0.45		$	0.40		$	0.45		$	(0.05	)		(11.1	)%
Net Income - Diluted		0.40			0.47			0.45			0.40			0.39			0.01			2.6
Cash Dividends Declared		0.200			0.175			0.175			0.175			0.175			0.025			14.3
Return on:
Average total assets ⁽²⁾		1.18	%		1.41	%		1.36	%		1.22	%		1.38	%		(0.20	)%		(14.6	)
Average total shareholders’ equity ⁽²⁾		15.4			19.1			18.4			16.6			18.5			(3.04	)		(16.5	)
Net interest margin ⁽³⁾		3.30			3.29			3.36			3.42			3.46			(0.16	)		(4.6	)
Efficiency ratio ⁽⁴⁾		66.3			62.3			65.1			67.1			60.0			6.31			10.5
Effective tax rate		29.0			28.3			25.1			26.6			26.3			2.72			10.3
Revenue - Fully Taxable Equivalent (FTE):
Net Interest Income	$	227,058		$	222,563		$	222,685		$	224,315		$	220,471		$	6,587			3.0
FTE Adjustment ⁽³⁾		2,864			2,919			3,023			2,954			2,558			306			12.0

Net Interest Income		229,922			225,482			225,708			227,269			223,029			6,893			3.1
Non-Interest Income		189,891			218,128			227,639			246,510			272,768			(82,877	)		(30.4	)

Total Revenue	$	419,813		$	443,610		$	453,347		$	473,779		$	495,797		$	(75,984	)		(15.3	)%

N.M. - Not Meaningful.

⁽¹⁾ Due to the adoption of FASB Interpretation No. 46 for variable interest entities.

⁽²⁾ Based on income before cumulative effect of change in accounting principle, net of tax.

⁽³⁾ On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.

⁽⁴⁾ Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains (losses).

Table 2 - Selected YTD Income Statement Data


	Nine Months Ended September 30,						2004 vs. 2003
(in thousands of dollars, except per share amounts)	2004			2003			Amount			%
Interest Income	$	988,100		$	970,659		$	17,441			1.8	%
Interest Expense		315,794			345,988			(30,194	)		(8.7	)

Net Interest Income		672,306			624,671			47,635			7.6
Provision for credit losses		42,408			137,652			(95,244	)		(69.2	)

Net Interest Income After Provision for Credit Losses		629,898			487,019			142,879			29.3

Operating lease income		231,985			384,391			(152,406	)		(39.6	)
Service charges on deposit accounts		129,368			123,077			6,291			5.1
Trust services		50,095			45,856			4,239			9.2
Brokerage and insurance income		41,920			43,500			(1,580	)		(3.6	)
Mortgage banking		23,474			48,503			(25,029	)		(51.6	)
Bank owned life insurance income		31,813			32,618			(805	)		(2.5	)
Other service charges and fees		30,957			32,209			(1,252	)		(3.9	)
Gain on sales of automobile loans		14,206			23,751			(9,545	)		(40.2	)
Gain on sale of branch offices		—			13,112			(13,112	)		N.M.
Securities gains (losses)		13,663			3,978			9,685			N.M.
Other		68,177			71,648			(3,471	)		(4.8	)

Total Non-Interest Income		635,658			822,643			(186,985	)		(22.7	)

Personnel costs		363,068			331,501			31,567			9.5
Operating lease expense		188,158			307,661			(119,503	)		(38.8	)
Outside data processing and other services		53,552			50,161			3,391			6.8
Equipment		47,609			49,081			(1,472	)		(3.0	)
Net occupancy		49,859			47,556			2,303			4.8
Professional services		27,354			30,273			(2,919	)		(9.6	)
Marketing		20,908			20,595			313			1.5
Telecommunications		15,191			16,707			(1,516	)		(9.1	)
Printing and supplies		9,315			9,592			(277	)		(2.9	)
Amortization of intangibles		612			612			—			—
Loss on early extinguishment of debt		—			—			—			—
Restructuring reserve releases		(1,151	)		(6,315	)		5,164			(81.8	)
Other		66,755			55,270			11,485			20.8

Total Non-Interest Expense		841,230			912,694			(71,464	)		(7.8	)

Income Before Income Taxes		424,326			396,968			27,358			6.9
Provision for income taxes		116,540			104,536			12,004			11.5

Income before cumulative effect of change in accounting principle		307,786			292,432			15,354			5.3
Cumulative effect of change in accounting principle, net of tax ⁽¹⁾		—			(13,330	)		13,330			N.M.

Net Income	$	307,786		$	279,102		$	28,684			10.3	%

Per Common Share
Income before cumulative effect of change in accounting principle - Diluted	$	1.32		$	1.26		$	0.06			4.8	%
Net Income - Diluted		1.32			1.21			0.11			9.1
Cash Dividends Declared		0.550			0.495			0.055			11.1
Return on:
Average total assets ⁽²⁾		1.32	%		1.37	%		(0.06	)%		(4.1	)%
Average total shareholders’ equity ⁽²⁾		17.6			17.9			(0.32	)		(1.8	)
Net interest margin ⁽³⁾		3.31			3.52			(0.21	)		(6.0	)
Efficiency ratio ⁽⁴⁾		64.5			62.9			1.61			2.6
Effective tax rate		27.5			26.3			1.13			4.3
Revenue - Fully Taxable Equivalent (FTE):
Net Interest Income	$	672,306		$	624,671		$	47,635			7.6	%
FTE Adjustment ⁽³⁾		8,806			6,730			2,076			30.8

Net Interest Income		681,112			631,401			49,711			7.9
Non-Interest Income		635,658			822,643			(186,985	)		(22.7	)

Total Revenue	$	1,316,770		$	1,454,044		$	(137,274	)		(9.4	)%

N.M. - Not Meaningful.

Significant Factors Influencing Financial Performance Comparisons

Earnings comparisons from the first nine months of 2003 through the first nine months of 2004 were impacted by a number of factors, some related to changes in the economic and competitive environment, while others reflected specific Management strategies or changes in accounting practices. Those key factors are summarized below.

1. Automobile leases originated through April 2002 are accounted for as operating leases – Automobile leases originated before May 2002 are accounted for using the operating lease method of accounting because they do not qualify as direct financing leases. Operating leases are a non-interest earning asset with the related rental income, other revenue, and credit recoveries reflected as operating lease income, a component of non-interest income. Under this accounting method, depreciation expenses, as well as other costs and charge-offs, are reflected as operating lease expense, a component of non-interest expense. With no new operating leases originated since April 2002, the operating lease assets are rapidly decreasing and will eventually run-off, along with related operating lease income and expense. Since operating lease income and expense represent a significant percentage of total non-interest income and expense, respectively, throughout this reporting period, their downward trend influences total non-interest income and non-interest expense trends.

Automobile leases originated since April 2002 are accounted for as direct financing leases, an interest earning asset included in total loans and leases with the related income reflected as interest income and included in the calculation of the net interest margin. Credit charge-offs and recoveries are reflected in the allowance for loan and lease losses (ALLL), with related changes in the ALLL reflected in provision for credit losses. The relative newness and rapid growth of this portfolio has resulted in higher reported automobile lease growth rates than in a more mature portfolio. To better understand overall trends in automobile lease exposure, it is helpful to compare trends in the combined total of automobile leases plus operating leases (see the company’s 2003 Form 10-K for a full discussion).

2. Transition from a weak economic environment in 2003 to a slow recovering economic environment in 2004. The weak economic environment resulted in continued weak demand for commercial and industrial (C&I) loans, which, when combined with strategies to lower the overall credit risk profile of the company (see below), has contributed to generally declining C&I loans throughout this period.

3. Declining interest rates in 2003 with generally increasing, though fluctuating, interest rates in 2004. Interest rates impacted, among other factors, loan and deposit growth, the net interest margin, and the valuation of mortgage servicing rights (MSRs) and investment securities.

• The historically low interest rate environment in 2003 and 2004, despite a general increase in short-term rates during the first nine months of 2004, resulted in strong demand and resultant growth in residential real estate, home equity, and commercial real estate (CRE) loans generally throughout this period. Mortgage banking revenue was also favorably impacted by the significant mortgage origination activity.

• As interest rates fell in 2003, it became increasingly difficult to lower interest rates offered on deposit accounts commensurate with the overall decline in interest rates and yields on earning assets. This created an extremely competitive environment in which to grow deposits and resulted in an inability to lower deposit rates commensurate with the overall decline in earning asset rates. This contributed to the decline in the net interest margin throughout 2003. Though short-term interest rates have risen generally throughout the first nine months of 2004, they remain at historically low levels and the competition for deposits has remained very competitive. As a result, deposit rates have also risen thus not permitting much expansion in the net interest margin.

• Since the second quarter of 2002, the company generally has retained the servicing on mortgage loans it originates and sells. The mortgage servicing right (MSR) represents the present value of expected future net servicing income for the loan. MSR values are very sensitive to movements in interest rates. Expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. Thus, as interest rates decline, less future income is expected and the value of MSRs declines and becomes impaired when the valuation is less than the recorded book value. The company recognizes temporary impairment due to change in interest rates through a valuation reserve and records a direct write-down of the book value of its MSRs

for other-than-temporary declines in valuation. Changes and fluctuations in interest rate levels between quarters resulted in some quarters reporting an MSR temporary impairment, with others reporting a recovery of previously reported MSR temporary impairment. Such swings in MSR valuations have significantly impacted quarterly mortgage banking income throughout this period (see Table 3).

• The company uses gains or losses on investment securities, and more recently gains or losses on trading account assets, to offset MSR temporary valuation changes. As a result, changes in interest rate levels have also resulted in securities gains or losses and trading losses. As such, in quarters where an MSR temporary impairment is recognized, investment securities and/or trading account assets were sold resulting in a gain on sale, and vice versa. Investment securities gains or losses are reflected in the income statement in a single non-interest income line item, whereas trading gains or losses are a component of other non-interest income on the income statement. The earnings impact of the MSR valuation change and securities gain/loss may not exactly offset due to, among other factors, the difference in the timing of when the MSR valuation is determined and recorded, compared with when the securities are sold and any gain or loss is recorded (see Table 3).

4. Management strategies to lower the overall credit risk profile of the balance sheet. Throughout this period, certain strategies were implemented to lower the overall credit risk profile of the balance sheet with the objective of lowering the volatility of earnings.

• Automobile loan sales – One strategy has been to lower the credit exposure to automobile loans and leases to at least 20% of total credit exposure, as manifested through the sale of automobile loans. These sales of higher-rate, higher-risk loans impact results in a number of ways including: lower growth rates in automobile, total consumer, and total company loans; the generation of gains reflected in non-interest income; lower net interest income than otherwise would be the case if the loans were not sold; and lower net interest margin (see Table 3).

• Reduction in large-individual C&I and CRE credits – This strategy has been reflected in the reduction in shared national credits, as well as other, mostly C&I loans. In addition, the company sold and charged-off lower-quality C&I and CRE credits in 2003 and 2004. This strategy was a contributing factor in the declines in C&I loan balances, NPAs, and the ALLL. In certain quarters, this strategy contributed to higher C&I net charge-offs.

5. Adoption of FIN 46 – Effective July 1, 2003, the company adopted Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities . The adoption of FIN 46 resulted in the consolidation of $1.0 billion of previously securitized automobile loans and a $13.3 million after-tax charge in the 2003 third quarter for the cumulative effect of a change in accounting principle (see Tables 1 and 2).

6. Corporate Restructuring Charges – 2003 and 2004 non-interest expense reflected recoveries of previously established corporate restructuring reserves, which were no longer needed (see Table 3) and lowered 2003 and 2004 non-interest expense (see Note 21 of the company’s 2003 Form 10-K Notes to Consolidated Financial Statements).

7. Single commercial recovery – A single commercial credit recovery in the 2004 second quarter on a loan previously charged off in the 2002 fourth quarter favorably impacted the 2004 second quarter provision expense (see Table 3), as well as C&I, total commercial, and total net charge-offs for the quarter (see Table 11).

8. Gain on the sale of West Virginia banking offices – In the 2003 third quarter, the company sold four banking offices in West Virginia which resulted in a $13.1 million gain (see Tables 1 and 2).

9. SEC related expenses and accruals – As previously disclosed, the Securities and Exchange Commission (SEC) is conducting a formal investigation regarding certain financial accounting and disclosure matters, including certain matters that were the subject of prior restatements by Huntington (see Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements). For the first nine months of 2004, the company recorded certain expenses and accruals related to this investigation, most notably in the third quarter (see Table 3).

10. Unizan system conversion expenses – On January 27, Huntington announced the signing of a definitive agreement to acquire Unizan Financial Corp. (Unizan), a financial holding company based in Canton, Ohio (see Note 4 of the Notes to Unaudited Condensed Consolidated Financial Statements). In the 2004 third quarter, the company recorded certain integration planning and system conversion expenses related to this pending acquisition (see Table 3).

The following table quantifies the earnings impact of changes in SEC related expenses / accruals, Unizan system conversion expenses, MSR and investment securities and trading account valuations, gains on sales of automobile loans, restructuring reserve releases, sale of the West Virginia banking offices, and a single, large commercial credit recovery on the
specified periods.

Table 3 - Significant Items Influencing Earnings Performance Comparisons


	Impact
(in millions, except per share )	Pre-tax			EPS
Three Months Ended:

September 30, 2004 - GAAP earnings	$	131.7		$	0.40
SEC related expenses / accruals		(5.5	)		(0.02	)
Unizan system conversion expense		(1.8	)		(0.01	)
Mortgage servicing right (MSR) temporary impairment		(4.1	)		(0.01	)
MSR-related trading losses		(2.3	)		(0.01	)
Investment securities gains		7.8			0.02

September 30, 2003 - GAAP earnings	$	141.4		$	0.45
SEC related expenses		(4.7	)		(0.01	)
Gains on sale of West Virginia offices		13.1			0.04
MSR temporary impairment recovery		17.8			0.05
Investment securities losses		(4.1	)		(0.01	)

Nine Months Ended:

September 30, 2004 - GAAP earnings	$	424.3		$	1.32
SEC related expenses / accruals		(7.1	)		(0.02	)
Unizan system conversion expense		(2.7	)		(0.01	)
Gains on sales of automobile loans		14.2			0.04
MSR-related trading losses		(2.3	)		(0.01	)
Investment securities gains		13.7			0.04
Single commercial credit recovery		9.7			0.03

September 30, 2003 - GAAP earnings	$	397.0		$	1.26
SEC related expenses		(5.1	)		(0.01	)
Gains on sale of West Virginia offices		13.1			0.04
Gains on sales of automobile loans		23.8			0.07
MSR temporary impairment recovery		11.4			0.03
Investment securities gains		4.0			0.01
Restructuring reserve releases		6.3			0.02

RESULTS OF OPERATIONS

Net Interest Income

2004 Third Quarter versus 2003 Third Quarter

Fully taxable equivalent net interest income increased $6.9 million, or 3%, from the year-ago quarter, reflecting the favorable impact of an 8% increase in average earning assets, partially offset by a 16 basis point, or an effective 5%, decline in the net interest margin. The fully taxable equivalent net interest margin decreased to 3.30% from 3.46%, reflecting the impact of lower rates and the strategic repositioning of portfolios to reduce automobile loans and to increase the relative proportion of lower-rate, and lower-risk, residential real estate-related loans and investment securities.

Average total loans and leases increased $1.7 billion, or 8%, from the 2003 third quarter due primarily to a $1.3 billion, or 11%, increase in average consumer loans. Contributing to the consumer loan growth was a $1.8 billion, or 84%, increase in average residential mortgages and a $0.5 billion, or 15%, increase in average home equity loans. Demand for residential mortgages and home equity loans remained strong during this twelve month period as interest rates remained near historically low levels. Average total automobile loans and leases decreased $1.1 billion, or 21%. This decline from the year-ago quarter reflected the sale of $2.6 billion of automobile loans over this 12-month period, partially offset by the rapid growth in direct financing leases due to the migration from operating lease assets, which have not been originated since April 2002.

During the third quarter, $153 million of automobile loans were sold, including $102 million of automobile loans transferred to loans held for sale during the 2004 second quarter. Combined, these transactions resulted in third quarter net pre-tax gains on the sale of automobile loans of $0.3 million. On a combined basis, these transactions increased the total automobile loans sold since the beginning of 2003 to $3.7 billion. These sales represented a continuation of a strategy to reduce exposure to automobile financing to approximately 20% of total credit exposure (see Table 10). At September 30, 2004, this exposure was $4.9 billion, down from $6.2 billion at year end and represented 21% of total credit exposure, down from 28% at year end 2003, and 30% at September 30, 2003.

Average total commercial and industrial (C&I) and commercial real estate (CRE) loan balances were $9.8 billion, up $0.4 billion, or 5%, from the year-ago quarter. This $9.8 billion consisted of middle-market C&I ($4.3 billion, down from $4.5 billion), middle market CRE ($3.5 billion, up from $3.1 billion), and small business C&I and CRE ($1.9 billion) loans. Small business C&I and CRE loans increased $188 million, or 11%. Middle-market C&I and CRE balances were impacted by a June 30, 2004 reclassification of $282 million of C&I loans to CRE loans. Adjusting for this reclassification, average middle-market C&I loans increased $93 million, or 2%, from the year-ago quarter and middle-market CRE loans increased $143 million, or 4%.

Average investment securities increased $0.7 billion, or 18%, from the year-ago quarter. This increase reflected the use of some of the proceeds from the previous sales of automobile loans to purchase 10-year variable rate securities.

Average total core deposits in the third quarter were $16.5 billion, up $0.7 billion, or 4%, from the year-ago quarter, reflecting a $0.8 billion, or 13%, increase in average interest bearing demand deposit accounts, partially offset by a $0.1 billion, or 6%, decline in retail CDs.

Tables 4 and 5 reflect quarterly average balance sheets and rates earned and paid on interest-earning assets and interest-bearing liabilities:

Table 4 — Condensed Consolidated Quarterly Average Balance Sheets


	Average Balances
																Change
(in millions)	2004									2003						3Q04 vs. 3Q03
Fully Taxable Equivalent Basis	Third			Second			First			Fourth			Third			Amount			Percent
Assets
Interest bearing deposits in banks	$	55		$	69		$	79		$	83		$	90		$	(35	)		(38.9	)%
Trading account securities		148			28			16			11			11			137			N.M.
Federal funds sold and securities purchased under resale agreements		318			168			92			117			103			215			N.M.
Loans held for sale		283			254			207			295			898			(615	)		(68.5	)
Investment securities:
Taxable		4,340			4,861			4,646			4,093			3,646			694			19.0
Tax exempt		398			410			437			421			362			36			9.9

Total Investment Securities		4,738			5,271			5,083			4,514			4,008			730			18.2

Loans and Leases:
Commercial and industrial		5,339			5,536			5,365			5,382			5,380			(41	)		(0.8	)
Real Estate
Construction		1,577			1,322			1,322			1,297			1,258			319			25.4
Commercial		2,890			2,906			2,876			2,830			2,744			146			5.3
Consumer
Automobile loans		1,857			2,337			3,041			3,529			3,594			(1,737	)		(48.3	)
Automobile leases		2,250			2,139			1,988			1,802			1,590			660			41.5

Total Automobile Loans and Leases		4,107			4,476			5,029			5,331			5,184			(1,077	)		(20.8	)

Home equity ⁽¹⁾		3,970			3,824			3,693			3,556			3,443			527			15.3
Residential mortgage ⁽¹⁾		3,906			3,326			2,846			2,624			2,122			1,784			84.1
Other loans ⁽¹⁾		406			377			371			386			381			25			6.6

Total Consumer		12,389			12,003			11,939			11,897			11,130			1,259			11.3

Total Loans and Leases		22,195			21,767			21,502			21,406			20,512			1,683			8.2

Allowance for loan and lease losses		(288	)		(310	)		(313	)		(350	)		(330	)		42			(12.7	)

Net Loans and Leases		21,907			21,457			21,189			21,056			20,182			1,725			8.5

Total Earning Assets		27,737			27,557			26,979			26,426			25,622			2,115			8.3

Operating lease assets		800			977			1,166			1,355			1,565			(765	)		(48.9	)
Cash and due from banks		928			772			740			766			747			181			24.2
Intangible assets		216			216			217			217			218			(2	)		(0.9	)
All other assets		2,072			2,101			2,046			2,008			2,061			11			0.5

Total Assets	$	31,465		$	31,313		$	30,835		$	30,422		$	29,883		$	1,582			5.3	%

Liabilities and Shareholders’ Equity
Core deposits
Non-interest bearing deposits	$	3,276		$	3,223		$	3,017		$	3,131		$	3,218		$	58			1.8	%
Interest bearing demand deposits		7,384			7,168			6,609			6,466			6,558			826			12.6
Savings deposits		2,841			2,839			2,819			2,824			2,808			33			1.2
Retail certificates of deposit		2,414			2,400			2,399			2,492			2,561			(147	)		(5.7	)
Other domestic time deposits		595			600			637			631			656			(61	)		(9.3	)

Total Core Deposits		16,510			16,230			15,481			15,544			15,801			709			4.5

Domestic time deposits of $100,000 or more		886			795			788			828			803			83			10.3
Brokered time deposits and negotiable CDs		1,755			1,737			1,907			1,851			1,421			334			23.5
Foreign time deposits		476			542			549			522			536			(60	)		(11.2	)

Total Deposits		19,627			19,304			18,725			18,745			18,561			1,066			5.7

Short-term borrowings		1,342			1,396			1,603			1,433			1,393			(51	)		(3.7	)
Federal Home Loan Bank advances		1,270			1,270			1,273			1,273			1,273			(3	)		(0.2	)
Subordinated notes and other long-term debt, including preferred capital securities		5,244			5,623			5,557			5,432			5,197			47			0.9

Total Interest Bearing Liabilities		24,207			24,370			24,141			23,752			23,206			1,001			4.3

All other liabilities		1,570			1,397			1,399			1,311			1,220			350			28.7
Shareholders’ equity		2,412			2,323			2,278			2,228			2,239			173			7.7

Total Liabilities and Shareholders’ Equity	$	31,465		$	31,313		$	30,835		$	30,422		$	29,883		$	1,582			5.3	%

N.M. - Not Meaningful

⁽¹⁾ Consumer loans that are secured by a first mortgage on residential property are presented as “residential mortgage loans.” Consumer loans that are secured by a junior mortgage on residential property are presented as “Home equity loans” Reclassification of prior period balances have been made to conform with this presentation.

Table 5 - Consolidated Quarterly Net Interest Margin Analysis


	Average Rates ⁽²⁾
	2004									2003
Fully Taxable Equivalent Basis ⁽¹⁾	Third			Second			First			Fourth			Third
Assets
Interest bearing deposits in banks		0.91	%		1.05	%		0.71	%		0.60	%		0.51	%
Trading account securities		4.44			3.02			3.98			2.39			4.70
Federal funds sold and securities purchased under resale agreements		1.53			1.21			1.41			1.30			1.92
Loans held for sale		5.25			5.17			5.33			5.31			5.16
Securities:
Taxable		3.83			3.83			4.06			4.24			4.23
Tax exempt		7.06			7.07			6.88			6.91			6.93

Total Securities		4.10			4.09			4.30			4.49			4.47

Loans and Leases:
Commercial and industrial		4.63			4.25			4.49			4.82			4.84
Real Estate
Construction		4.11			3.70			3.68			4.24			4.17
Commercial		4.76			4.57			4.70			4.99			5.22
Consumer
Automobile loans		7.65			7.20			6.93			6.90			7.19
Automobile leases		5.02			5.06			4.94			4.98			4.99

Automobile Loans and Leases		6.21			6.17			6.14			6.25			6.51

Home equity ⁽³⁾		4.72			4.73			4.47			4.75			5.03
Residential mortgage ⁽³⁾		5.52			5.36			5.16			5.24			5.34
Other loans ⁽³⁾		6.89			6.33			5.62			8.15			7.93

Total Consumer		5.54			5.49			5.52			5.64			5.87

Total Loans and Leases		5.12			4.95			5.04			5.26			5.41

Total Earning Assets		4.89	%		4.76	%		4.89	%		5.11	%		5.23	%

Liabilities and Shareholders’ Equity
Core deposits
Non-interest bearing deposits
Interest bearing demand deposits ⁽⁴⁾		1.06	%		0.94	%		0.88	%		0.91	%		1.04	%
Savings deposits		0.83			0.82			0.94			1.22			1.35
Retail certificates of deposit		3.32			3.27			3.47			3.54			3.51
Other domestic time deposits		3.22			3.19			3.48			3.69			3.89

Total Core Deposits		1.52			1.45			1.53			1.65			1.76

Domestic time deposits of $100,000 or more		2.40			2.37			2.14			2.37			2.32
Brokered time deposits and negotiable CDs		1.84			1.57			1.51			1.52			1.63
Foreign time deposits		0.83			0.76			0.72			0.75			0.85

Total Deposits		1.58			1.48			1.53			1.64			1.75

Short-term borrowings		0.92			0.80			0.83			0.78			0.85
Federal Home Loan Bank advances		2.60			2.52			2.50			2.24			1.81
Subordinated notes and other long-term debt, including preferred capital securities		2.62			2.24			2.33			2.63			2.78

Total Interest Bearing Liabilities		1.82	%		1.66	%		1.71	%		1.85	%		1.93	%

Net interest rate spread		3.07	%		3.10	%		3.18	%		3.26	%		3.30	%
Impact of non-interest bearing funds on margin		0.23			0.19			0.18			0.16			0.16

Net Interest Margin		3.30	%		3.29	%		3.36	%		3.42	%		3.46	%

⁽¹⁾ Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate. See Table 1 for the FTE adjustment.

⁽²⁾ Loan and lease and deposit average rates include impact of applicable derivatives and non-deferrable fees.

⁽³⁾ Consumer loans that are secured by a first mortgage on residential property are presented as “residential mortgage loans.” Consumer loans that are secured by a junior mortgage on residential property are presented as “Home equity loans.” Reclassification of prior period balances have been made to conform with this presentation.

⁽⁴⁾ The 2004 second quarter calculation has been corrected to conform to other periods presented.

2004 Third Quarter versus 2004 Second Quarter

Compared with the 2004 second quarter, fully taxable equivalent net interest income increased $4.4 million, or 2%, reflecting the favorable impact of a 1% increase in average earning assets and a one basis point increase in the net interest margin to 3.30% from 3.29%.

Compared with the second quarter, average total loans and leases increased $0.4 billion, or 2%, with the growth rate mitigated by a $0.5 billion, or 21%, decline in average automobile loans due to the second quarter ($512 million) and third quarter ($153 million) sales of automobile loans. Growth in mortgage-related consumer loans remained strong with average residential mortgages up $0.6 billion, or 17%, and average home equity loans up $0.1 billion, or 4%. Total average C&I and CRE loans increased slightly, primarily reflecting a $63 million, or 3%, increase in small business C&I and CRE loans. As discussed above, middle-market C&I and CRE loan balances were impacted by the $282 million loan reclassification on June 30, 2004. Adjusting for this reclassification, third quarter average middle-market C&I and CRE loans were essentially flat.

Compared with the second quarter, average investment securities declined $0.5 billion, or 10%.

Compared with the 2004 second quarter, average total core deposits increased $0.3 billion, or 2%, reflecting growth in interest bearing demand deposits, up $0.2 billion, or 3%, as well as non-interest bearing deposits, up $0.1 billion, or 2%.

2004 First Nine Months versus 2003 First Nine Months

Fully taxable equivalent net interest income for the first nine months of 2004 increased $49.7 million, or 8%, from the comparable year-ago period, reflecting the favorable impact of a 14% increase in average earning assets, partially offset by a 21 basis point, or an effective 6%, decline in the net interest margin. The fully taxable equivalent net interest margin decreased to 3.31% from 3.52%, reflecting the impact of lower rates and the strategic repositioning of portfolios to reduce automobile loans and increase the relative proportion of lower-rate, and lower-risk, residential real estate-related loans and investment securities.

Average total loans and leases increased $2.3 billion, or 12%, from the first nine months of 2003 due primarily to a $2.0 billion, or 19%, increase in average consumer loans. Contributing to the consumer loan growth was a $1.4 billion, or 72%, increase in average residential mortgages and a $0.5 billion, or 15%, increase in average home equity loans. Average total automobile loans and leases increased $0.1 billion, or 1%. This growth from the year-ago, nine-month period reflected the positive impact of underlying new automobile loan originations, the 2003 third quarter consolidation of a $1.0 billion automobile loan securitization trust, and the rapid growth in direct financing leases due to the migration from operating lease assets, which are no longer being originated. Partially offsetting these positive impacts was the sale of automobile loans over this period.

Average total C&I and CRE loans in the first nine months of 2004 increased $0.3 billion, or 3%, from the comparable year-ago period reflecting an 11% increase in small business C&I and CRE loans, and a 11% increase in middle-market CRE loans. Average middle-market C&I loans were down 5% from the year-ago period and reflected both weak demand and the impact from continued strategies to specifically lower exposure to large individual commercial credits, including shared national credits.

Average investment securities increased $1.4 billion, or 38%, from the year-ago nine-month period primarily reflecting the investment of a portion of the proceeds from the automobile loan sales.

Average total core deposits in the first nine months of 2004 were $16.1 billion, up $0.7 billion, or 4%, from the comparable year-ago period. This growth primarily reflected a $1.0 billion, or 16%, increase in interest bearing demand deposits, primarily money market accounts, partially offset by a $0.4 billion, or 13%, decline in retail CDs.

Table 6 reflects average balance sheets and rates earned and paid on interest-earning assets and interest-bearing liabilities, respectively, for the first nine-month periods of 2004 and 2003:

Table 6 - Condensed Consolidated YTD Average Balance Sheets and Net Interest Margin Analysis


	YTD Average Balances												YTD Average Rates ⁽²⁾
(in millions)	Nine Months Ending Sept 30,						2004 vs. 2003						Nine Months Ending Sept 30,
Fully Tax Equivalent Basis ⁽¹⁾	2004			2003			Amount			%			2004			2003
Assets
Interest bearing deposits in banks	$	67		$	58		$	9			15.5			0.88	%		1.53	%
Trading account securities		64			16			48			N.M.			4.17			4.41
Federal funds sold and securities purchased under resale agreements		193			76			117			N.M.			1.42			2.05
Loans held for sale		248			654			(406	)		(62.1	)		5.24			5.32
Securities:
Taxable		4,615			3,350			1,265			37.8			3.91			4.63
Tax exempt		415			304			111			36.5			7.00			7.09

Total Securities		5,030			3,654			1,376			37.7			4.17			4.83

Loans and Leases:
Commercial and industrial		5,413			5,542			(129	)		(2.3	)		4.45			5.17
Real Estate
Construction		1,408			1,229			179			14.6			3.85			4.22
Commercial		2,891			2,644			247			9.3			4.67			5.31
Consumer
Automobile loans		2,410			3,170			(760	)		(24.0	)		7.20			7.56
Automobile leases		2,126			1,304			822			63.0			5.00			5.15

Automobile loans and leases		4,536			4,474			62			1.4			6.17			6.86

Home equity ⁽³⁾		3,830			3,337			493			14.8			4.65			4.97
Residential mortgage ⁽³⁾		3,361			1,958			1,403			71.7			5.36			5.64
Other loans ⁽³⁾		384			383			1			0.3			6.30			7.92

Total Consumer		12,111			10,152			1,959			19.3			5.52			6.05

Total Loans and Leases		21,823			19,567			2,256			11.5			5.03			5.59

Allowance for loan and lease losses		(314	)		(350	)		36			(10.3	)

Net loans and leases		21,509			19,217			2,292			11.9

Total earning assets		27,425			24,025			3,400			14.2			4.84	%		5.45	%

Operating lease assets		980			1,812			(832	)		(45.9	)
Cash and due from banks		814			740			74			10.0
Intangible assets		216			218			(2	)		(0.9	)
All other assets		2,074			2,010			64			3.2

Total Assets	$	31,195		$	28,455		$	2,740			9.6

Liabilities and Shareholders’ Equity
Core deposits
Non-interest bearing deposits	$	3,172		$	3,063		$	109			3.6
Interest bearing demand deposits		7,055			6,100			955			15.7			0.96	%		1.28	%
Savings deposits		2,833			2,795			38			1.4			0.86			1.58
Retail certificates of deposit		2,404			2,773			(369	)		(13.3	)		3.35			3.72
Other domestic time deposits		611			670			(59	)		(8.8	)		3.30			3.91

Total core deposits		16,075			15,401			674			4.4			1.50			2.04

Domestic time deposits of $100,000 or more		823			793			30			3.8			2.31			2.54
Brokered time deposits and negotiable CDs		1,800			1,274			526			41.3			1.64			1.79
Foreign time deposits		522			492			30			6.1			0.77			0.98

Total deposits		19,220			17,960			1,260			7.0			1.53			2.01

Short-term borrowings		1,447			1,656			(209	)		(12.6	)		0.85			1.04
Federal Home Loan Bank advances		1,271			1,253			18			1.4			2.54			1.80
Subordinated notes and other long-term debt, including preferred capital securities		5,474			4,265			1,209			28.3			2.39			2.89

Total interest bearing liabilities		24,240			22,071			2,169			9.8			1.74	%		2.09	%

All other liabilities		1,445			1,137			308			27.1
Shareholders’ equity		2,338			2,184			154			7.1

Total Liabilities and Shareholders’ Equity	$	31,195		$	28,455		$	2,740			9.6

Net interest rate spread														3.10	%		3.36	%
Impact of non-interest bearing funds on margin														0.21			0.16

Net Interest Margin														3.31	%		3.52	%

⁽¹⁾ Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate. See Table 2 for the FTE adjustment.

⁽²⁾ Loan and lease and deposit average rates include impact of applicable derivatives and non-deferrable fees.

⁽³⁾ Consumer loans that are secured by a first mortgage on residential property are presented as “residential mortgage loans.” Consumer loans that are secured by a junior mortgage on residential property are presented as “Home equity loans.” Reclassification of prior period balances have been made to conform with this presentation.

Provision for Credit Losses

The provision for credit losses is the expense necessary to maintain the ALLL and the allowance for unfunded loan commitments (AULC) at levels adequate to absorb Management’s estimate of inherent losses in the total loan and direct financing lease portfolio, unfunded loan commitments, and letters of credit. Taken into consideration are such factors as current period net charge-offs that are charged against these allowances, current period loan and lease growth and any related estimate of likely losses associated with that growth based on historical experience, the current economic outlook, and the anticipated impact on credit quality of existing loans and leases, unfunded commitments and letters of credit (see Allowances for Credit Losses for additional discussion and Table 14).

The provision for credit losses in the 2004 third quarter was $11.8 million, a $39.8 million reduction from the year-ago quarter and a $6.8 million increase from the 2004 second quarter. The reduction from the year-ago quarter reflected overall improved portfolio quality performance, as well as an improved economic outlook, only partially offset by provision expense related to loan growth. The increase in provision for credit losses from the 2004 second quarter reflected the fact that the 2004 second quarter provision benefited from a $9.7 million recovery on a single C&I credit that had been charged-off in the 2002 fourth quarter. Underlying credit quality trends between the 2004 second and third quarter continued to improve. As previously disclosed, effective January 1, 2004, the company adopted a more quantitative approach to calculating the economic reserve component of the ALLL, making this component more responsive to changes in economic conditions. This change, combined with the existing quantitative approach for determining the transaction reserve component, as well as changes to the specific reserve component, will result in more volatility in the total ALLL and corresponding provision for credit losses (see Credit Risk for additional discussion).

The provision for credit losses in the first nine months of 2004 was $42.4 million, a $95.2 million, or 69%, decline from the comparable year-ago period. This reduction reflected the same factors impacting third quarter year-over-year performance.

Non-Interest Income

Table 7 reflects non-interest income detail for each of the past five
quarters, and the first nine-months of 2004 and 2003:

Table 7 — Non-Interest Income


	2004								2003					3Q04 vs. 3Q03
(in thousands)	Third		Second			First			Fourth		Third			Amount			Percent
Service charges on deposit accounts	$	43,935	$	43,596		$	41,837		$	44,763	$	42,294		$	1,641			3.9	%
Trust services		17,064		16,708			16,323			15,793		15,365			1,699			11.1
Brokerage and insurance		13,200		13,523			15,197			14,344		13,807			(607	)		(4.4	)
Mortgage banking		4,448		23,322			(4,296	)		9,677		30,193			(25,745	)		(85.3	)
Bank owned life insurance		10,019		11,309			10,485			10,410		10,438			(419	)		(4.0	)
Gain on sale of automobile loans		312		4,890			9,004			16,288		—			312			—
Gain on sale of branch offices		—		—			—			—		13,112			(13,112	)		N.M.
Other service charges and fees		10,799		10,645			9,513			9,237		10,499			300			2.9
Securities gains (losses)		7,803		(9,230	)		15,090			1,280		(4,107	)		11,910			N.M.
Other		17,899		24,659			25,619			19,411		23,543			(5,644	)		(24.0	)

Sub-total before operating lease income		125,479		139,422			138,772			141,203		155,144			(29,665	)		(19.1	)
Operating lease income		64,412		78,706			88,867			105,307		117,624			(53,212	)		(45.2	)

Total Non-Interest Income	$	189,891	$	218,128		$	227,639		$	246,510	$	272,768		$	(82,877	)		(30.4	)%


	Nine Months Ending
	September 30,				2004 vs. 2003
(in thousands)	2004		2003		Amount			Percent
Service charges on deposit accounts	$	129,368	$	123,077	$	6,291			5.1	%
Trust services		50,095		45,856		4,239			9.2
Brokerage and insurance		41,920		43,500		(1,580	)		(3.6	)
Mortgage banking		23,474		48,503		(25,029	)		(51.6	)
Bank owned life insurance		31,813		32,618		(805	)		(2.5	)
Gain on sale of automobile loans		14,206		23,751		(9,545	)		(40.2	)
Gain on sale of branch offices		—		13,112		(13,112	)		N.M.
Other service charges and fees		30,957		32,209		(1,252	)		(3.9	)
Securities gains (losses)		13,663		3,978		9,685			N.M.
Other		68,177		71,648		(3,471	)		(4.8	)

Sub-total before operating lease income		403,673		438,252		(34,579	)		(7.9	)
Operating lease income		231,985		384,391		(152,406	)		(39.6	)

Total Non-Interest Income	$	635,658	$	822,643	$	(186,985	)		(22.7	)%

N.M. — Not Meaningful.

2004 Third Quarter versus 2003 Third Quarter

Non-interest income decreased $82.9 million, or 30%, from the year-ago quarter. Comparisons with prior-period results are heavily influenced by the decline in operating leases and related operating lease income. These trends are expected to continue as all automobile leases originated since April 2002 are direct financing leases with income reflected in net interest income, not non-interest income. Reflecting the run-off of the operating lease portfolio, operating lease income declined $53.2 million, or 45%, from the 2003 third quarter. Excluding operating lease income, non-interest income decreased $29.7 million, or 19%, from the year-ago quarter with the primary drivers being:

• $25.7 million, or 85%, decrease in mortgage banking income. This reflected a $21.9 million change in MSR temporary impairment valuations, as the current quarter included a $4.1 million MSR temporary impairment compared with a $17.8 million recovery of previously recorded MSR temporary impairment recognized in the year-ago quarter. MSR valuations are very sensitive to movements in interest rates. Excluding the MSR temporary impairment valuation change between quarters, mortgage banking income decreased $3.8 million, primarily reflecting lower secondary marketing gains and lower origination volume.

• $13.1 million gain on sale of branch offices in the year ago quarter with no such gain in the current quarter.

• $5.6 million, or 24%, decline in other income due to lower investment banking income and the MSR-related trading loss. To offset the volatility that results from recognizing temporary MSR valuation changes, Huntington has used investment securities and, more recently, other trading account assets, including forward commitments

and options. As none of these instruments qualify for hedge accounting, the change in value of the trading account assets are reported as a component of other income, whereas the gains (losses) from the sale of securities that are available for sale are reported as investment securities gains (losses).

Partially offset by:

• $11.9 million increase in investment securities gains as the current quarter reflected gains of $7.8 million compared with $4.1 million of securities losses in the year-ago quarter.

• $1.7 million, or 11%, increase in trust services income as a result of higher personal trust fees, reflecting higher average asset values and higher money market mutual fund fees.

• $1.6 million, or 4%, increase in service charges on deposit accounts due to higher service charges on personal accounts.

2004 Third Quarter versus 2004 Second Quarter

Compared with the 2004 second quarter, non-interest income declined $28.2 million, or 13%. This comparison is also heavily influenced by the decline in operating lease income for the reasons noted above. Reflecting the run-off of the operating lease portfolio, operating lease income declined $14.3 million, or 18%, from the 2004 second quarter. Excluding operating lease income, non-interest income decreased $13.9 million, or 10%, from the 2004 second quarter with the primary drivers being:

• $18.9 million, or 81%, decrease in mortgage banking income. This reflected a $19.0 million change in MSR temporary impairment valuations, as the current quarter included a $4.1 million MSR temporary impairment compared with a $14.9 million recovery of previously recorded MSR temporary impairment recognized in the second quarter. This increase in MSR temporary impairment valuation between quarters reflected the downward movement in mortgage interest rates in the third quarter. The MSR temporary impairment valuation reserve at September 30, 2004 was $5.5 million. Reflecting the decline in interest rates during the quarter, the value of MSRs as a percent of mortgages serviced for others was 1.13%, down from 1.21% at June 30, 2004.

• $6.8 million, or 27%, decrease in other income reflecting the MSR-related trading loss in the current quarter, as well as a decline in investment banking and trading fee income.

• $4.6 million decrease in gain on sale of automobile loans as the current quarter reflected $0.3 million of gains, compared with $4.9 million of gains in the second quarter.

Partially offset by:

• $17.0 million increase in securities gains (losses), with the current quarter reflecting $7.8 million in securities gains, compared with $9.2 million of securities losses in the 2004 second quarter.

2004 First Nine Months versus 2003 First Nine Months

Non-interest income for the first nine months of 2004 declined $187.0 million, or 23%, from the comparable year-ago period. Comparisons with prior-period results are heavily influenced by the decline in operating leases and related operating lease income (see above discussion). Reflecting the run-off of the operating lease portfolio, operating lease income for the first nine months of 2004 declined $152.4 million, or 40%, from the comparable year-ago period. Excluding operating lease income, non-interest income for the first nine months of 2004 decreased $34.6 million, or 8%, from the comparable year-ago period with the primary drivers being:

• $25.0 million, or 52%, decline in mortgage banking income. This reflected a $10.8 million change in MSR temporary impairment valuations, as the current nine-month period included $0.6 million recovery of previously recorded MSR temporary impairment compared with an $11.4 million recovery of previously recorded MSR temporary impairment in the comparable year-ago period. The remainder of the decline primarily reflected lower secondary marketing gains and lower origination volume.

• $13.1 million gain on sale of branch offices in the year-ago nine-month period with no such gain in the comparable

current year period.

• $9.5 million reduction in the gain on sale of automobile loans.

• $3.5 million decline in other income, including a $2.3 million loss on trading activity in the current year period to offset MSR temporary valuation changes, as well as lower investment banking income.

Partially offset by:

• $9.7 million increase in gains from the sale of investment securities to offset MSR temporary valuation changes.

• $6.3 million, or 5%, increase in service charges on deposit accounts.

• $4.2 million, or 9%, increase in trust services.

Non-Interest Expense

Table 8 reflects non-interest expense detail for each of the last five
quarters and the first nine-month period for 2004 and 2003:

Table 8 - Non-Interest Expense


	2004							2003					3Q04 vs. 3Q03
(in thousands)	Third			Second		First		Fourth			Third		Amount			Percent
Personnel costs	$	121,729		$	119,715	$	121,624	$	115,762		$	113,170	$	8,559			7.6	%
Outside data processing and other services		17,527			17,563		18,462		15,957			17,478		49			0.3
Equipment		15,295			16,228		16,086		16,840			16,328		(1,033	)		(6.3	)
Net occupancy		16,838			16,258		16,763		14,925			15,570		1,268			8.1
Professional services		12,219			7,836		7,299		12,175			11,116		1,103			9.9
Marketing		5,000			8,069		7,839		6,895			5,515		(515	)		(9.3	)
Telecommunications		5,359			4,638		5,194		5,272			5,612		(253	)		(4.5	)
Printing and supplies		3,201			3,098		3,016		3,417			3,658		(457	)		(12.5	)
Amortization of intangible assets		204			204		204		204			204		—			—
Loss on early extinguishment of debt		—			—		—		15,250			—		—			—
Restructuring reserve releases		(1,151	)		—		—		(351	)		—		(1,151	)		—
Other		22,317			25,981		18,457		25,510			18,397		3,920			21.3

Sub-total before operating lease expense		218,538			219,590		214,944		231,856			207,048		11,490			5.5
Operating lease expense		54,885			62,563		70,710		85,609			93,134		(38,249	)		(41.1	)

Total Non-Interest Expense	$	273,423		$	282,153	$	285,654	$	317,465		$	300,182	$	(26,759	)		(8.9	)%


	Nine Months Ending
	September 30,						2004 vs. 2003
(in thousands)	2004			2003			Amount			Percent
Personnel costs	$	363,068		$	331,501		$	31,567			9.5	%
Outside data processing and other services		53,552			50,161			3,391			6.8
Equipment		47,609			49,081			(1,472	)		(3.0	)
Net occupancy		49,859			47,556			2,303			4.8
Professional services		27,354			30,273			(2,919	)		(9.6	)
Marketing		20,908			20,595			313			1.5
Telecommunications		15,191			16,707			(1,516	)		(9.1	)
Printing and supplies		9,315			9,592			(277	)		(2.9	)
Amortization of intangible assets		612			612			—			—
Restructuring reserve releases		(1,151	)		(6,315	)		5,164			(81.8	)
Other		66,755			55,270			11,485			20.8

Sub-total before operating lease expense		653,072			605,033			48,039			7.9
Operating lease expense		188,158			307,661			(119,503	)		(38.8	)

Total Non-Interest Expense	$	841,230		$	912,694		$	(71,464	)		(7.8	)%

2004 Third Quarter versus 2003 Third Quarter

Non-interest expense decreased $26.8 million, or 9%, from the year-ago quarter. Comparisons with prior-period results are influenced by the decline in operating lease expense as the operating lease portfolio continues to run-off (see above operating lease income discussion). Excluding operating lease expense, non-interest expense increased $11.5 million, or 6%, from the year-ago quarter with the primary drivers being:

• $8.6 million, or 8%, increase in personnel costs primarily reflecting higher salaries and benefits expense, partially offset by lower sales commissions due to weaker mortgage origination and capital market activities.

• $3.9 million, or 21%, increase in other expense reflecting higher automobile lease residual value losses, as well as SEC-related expenses and accruals.

• $1.3 million, or 8%, increase in net occupancy expense.

• $1.1 million, or 10%, increase in professional services including SEC-related expenses.

Partially offset by:

• $1.2 million benefit from the release of restructuring reserves in the current quarter.

• $1.0 million, or 6%, decline in equipment expense.

The current quarter included $1.8 million of current quarter expenses related to Unizan integration planning and systems conversion. These expenses were spread across various non-interest expense categories with no meaningful impact on any single line item.

2004 Third Quarter versus 2004 Second Quarter

Compared with the 2004 second quarter, non-interest expense declined $8.7 million, or 3%. Comparisons with prior-period results are also heavily influenced by the decline in operating lease expense. Operating lease expense declined $7.7 million, or 12%, from the 2004 second quarter. Excluding operating lease expense, non-interest expense decreased $1.1 million from the second quarter with the primary drivers being:

• $3.7 million, or 14%, decrease in other expense as the second quarter included $5.8 million of costs related to investments in partnerships generating tax benefits for the first half of 2004. The 2004 third quarter other expense included automobile lease residual value losses, as well as SEC-related expenses and accruals.

• $3.1 million, or 38%, decrease in marketing expense due to lower advertising expenditures.

• $1.2 million benefit from the release of restructuring reserves in the current quarter.

Partially offset by:

• $4.4 million, or 56%, increase in professional services primarily reflecting SEC-related expenses.

• $2.0 million, or 2%, increase in personnel costs.

2004 First Nine Months versus 2003 First Nine Months

Non-interest expense for the first nine months of 2004 declined $71.5 million, or 8%, from the comparable year-ago period. Comparisons with prior-period results are influenced by the decline in operating lease expense as the operating lease portfolio continues to run-off (see above operating lease income discussion). Operating lease expense declined $119.5 million, or 39%, from the 2003 nine-month period.

Excluding operating lease expense, non-interest expense for the first nine months of 2004 increased $48.0 million, or 8%, from the year-ago period with the primary drivers being:

• $31.6 million, or 10%, increase in personnel costs primarily reflecting a $17.3 million, or 28%, increase in benefits expense and an $17.0 million, or 8%, increase in salaries.

• $11.5 million, or 21%, increase in other expense reflecting $5.8 million of costs related to investments in partnerships generating tax benefits in the current nine-month period and to a lesser degree accruals for pending litigation and SEC-related costs.

• $5.2 million in restructuring reserve releases that lowered expenses in the year-ago nine-month period.

Operating Lease Assets

Table 9 reflects operating lease assets performance detail for each of the
last five quarters, and the first nine-months of 2004 and 2003:

Table 9 - Operating Lease Performance


	2004									2003						3Q04 vs. 3Q03
	Third			Second			First			Fourth			Third			Amount			Percent
Balance Sheet *(in millions)*
Average operating lease assets outstanding	$	800		$	977		$	1,166		$	1,355		$	1,565		$	(765	)		(49)	%
Income Statement *(in thousands)*
Net rental income	$	60,267		$	72,402		$	83,517		$	98,223		$	109,645		$	(49,378	)		(45)	%
Fees		2,965			4,838			3,543			5,204			5,372			(2,407	)		(44.8	)
Recoveries - early terminations		1,180			1,466			1,807			1,880			2,607			(1,427	)		(54.7	)

Total Operating Lease Income		64,412			78,706			88,867			105,307			117,624			(53,212	)		(45.2	)

Depreciation and residual losses at termination		49,917			57,412			63,823			76,768			83,112			(33,195	)		(39.9	)
Losses - early termination		4,968			5,151			6,887			8,841			10,022			(5,054	)		(50.4	)

Total Operating Lease Expense		54,885			62,563			70,710			85,609			93,134			(38,249	)		(41.1	)

Net Earnings Contribution	$	9,527		$	16,143		$	18,157		$	19,698		$	24,490		$	(14,963	)		(61.1)	%

Earnings ratios ⁽¹⁾
Net rental income		30.1	%		29.6	%		28.7	%		29.0	%		28.0	%		2.1	%		7.5	%
Depreciation and residual losses at termination		25.0			23.5			21.9			22.7			21.2			3.7			17.5

(1) As a percent of average operating lease assets, quarterly amounts annualized.


	Nine Months Ended
	September 30,						2004 vs. 2003
	2004			2003			Amount			Percent
Balance Sheet *(in millions)*
Average operating lease assets outstanding	$	980		$	1,812		$	(831	)		(45.9	)%
Income Statement *(in thousands)*
Net rental income	$	216,186		$	360,421		$	(144,235	)		(40.0	)%
Fees		11,346			16,419			(5,073	)		(30.9	)
Recoveries - early terminations		4,453			7,551			(3,098	)		(41.0	)

Total Operating Lease Income		231,985			384,391			(152,406	)		(39.6	)

Depreciation and residual losses at termination		171,152			273,782			(102,630	)		(37.5	)
Losses - early termination		17,006			33,879			(16,873	)		(49.8	)

Total Operating Lease Expense		188,158			307,661			(119,503	)		(38.8	)

Net Earnings Contribution	$	43,827		$	76,730		$	(32,903	)		(42.9	)%

Earnings ratios ⁽¹⁾
Net rental income		29.4	%		26.5	%		2.9	%		10.8	%
Depreciation and residual losses at termination		23.3			20.2			3.1			15.6

(1) As a percent of average operating lease assets, quartlery amounts annualized.

Operating lease assets represent automobile leases originated before May 2002. This operating lease portfolio will run-off over time since all automobile lease originations after April 2002 have been recorded as direct financing leases and are reported in the automobile loan and lease category in earning assets. As a result, the non-interest income and non-interest expenses associated with the operating lease portfolio will also decline over time.

2004 Third Quarter versus 2003 Third Quarter and 2004 Second Quarter

Average operating lease assets in the 2004 third quarter were $0.8 billion, down $0.8 billion, or 49%, from the year-ago quarter and 18% from the 2004 second quarter.

Operating lease income, which totaled $64.4 million in the 2004 third quarter, represented 34% of non-interest income in the quarter. Operating lease income was down $53.2 million, or 45%, from the year-ago quarter and $14.3 million, or 18%, from the 2004 second quarter, reflecting the declines in average operating leases. As no new operating leases have been originated after April 2002, the operating lease asset balances will continue to decline through both depreciation and lease terminations. Net rental income was down 45% and 17%, respectively, from the year-ago and 2004 second quarter. Fees declined 45% from the year-ago quarter and 39% from the second quarter reflecting the recognition of deferred fees resulting from higher than expected prepayments of operating lease assets in the second quarter of this year. Recoveries from early terminations declined 55% from the year-ago quarter and 20% from the second quarter.

Operating lease expense totaled $54.9 million, down $38.2 million, or 41%, from the year-ago quarter and down $7.7 million, or 12%, from the 2004 second quarter. These declines also reflected the fact that this portfolio is decreasing over time as no new operating leases are being originated. The decline in operating lease expense from the year-ago quarter was partially offset by a $3.5 million increase in additional depreciation expense for the estimated decline in residual values.

Losses on operating lease assets consist of residual losses at termination and losses on early terminations. Residual losses arise if the ultimate value or sales proceeds from the automobile are less than Black Book value, which represents the insured amount under the company’s residual value insurance policies. This situation may occur due to excess wear-and-tear or excess mileage not collected from the lessee. Losses on early terminations occur when a lessee, due to credit or other reasons, turns in the automobile before the end of the lease term. A loss is realized if the automobile is sold for a value less than the net book value at the date of turn-in. Such losses are not covered by the residual value insurance policies. To the extent the company is successful in collecting any deficiency from the lessee, amounts received are recorded as recoveries from early terminations.

Credit losses on operating lease assets are included in operating lease expense and were $5.0 million in the current quarter, down from $10.0 million in the year-ago quarter and $5.2 million in the second quarter. Recoveries on operating lease assets are included in operating lease income and totaled $1.2 million, $2.6 million, and $1.5 million, for the same periods, respectively. The ratio of operating lease asset credit losses to average operating lease assets, net of recoveries, was an annualized 1.89% in the current quarter, 1.90% in the year-ago quarter, and 1.51% in the 2004 second quarter. As noted in the non-interest income discussion above, the operating lease portfolio will decline over time as no new operating lease assets have been generated since April 2002.

On a quarterly basis, Management evaluates the amount of residual value losses that it anticipates will result from the estimated fair value of a leased vehicle being less than the residual value inherent in the lease. Fair value includes estimated net proceeds from the sale of the leased vehicle plus expected residual value insurance proceeds and amounts expected to be collected from the lessee for excess mileage and other items that are billable under terms of the lease contract. When estimating the amount of expected insurance proceeds, Management takes into consideration policy caps that exist in two of the three residual value insurance policies and whether it expects aggregate claims under such policies to exceed these caps. Residual value losses exceeding any insurance policy cap are reflected in higher depreciation expense over the remaining life of the affected automobile lease. Also as part of its quarterly analysis, Management evaluates automobile leases individually for impairment.

Residual value losses on automobile leases booked prior to October 1, 2000, were covered by an insurance policy with a $120 million cap. During the third quarter, residual value losses exceeded this cap a few months earlier than anticipated due to higher than anticipated volume of turned in automobiles and to a lesser degree, softness in the used car market. Total losses above the cap are expected to be $18-$30 million, including $10 million already recognized and reflected in additional accumulated depreciation. As a result, the company anticipates that 2004 fourth quarter operating lease depreciation will be $2-$3 million higher than the 2004 third quarter expense level, with lesser amounts in quarters thereafter.

The residual value insurance policy covering automobile leases originated between October 1, 2000 and April 30, 2002 contains a $50 million cap. At this time, the company anticipates that total claims against this policy will be $10-$18 million, well below the cap. To date, approximately $3 million of claims have been filed on this policy. All automobile leases originated since April 30, 2002, are covered under a policy that does not place a cap on losses. This policy will cover leases originated through April 30, 2005.

2004 First Nine Months versus 2003 First Nine Months

Average operating lease assets in the first nine-months of 2004 were $1.0 billion, down $0.8 billion, or 46%, from the comparable year-ago period.

Operating lease income, which totaled $232.0 million in the first nine months of 2004, represented 36% of non-interest income, and was down $152.4 million, or 40%, from the comparable year-ago period. Net rental income was down $144.2 million, or 40%. Fees declined $5.1 million, or 31%, from the same year-ago period. Recoveries from early terminations declined $3.1 million, or 41% from the year-ago period. Operating lease expense totaled $188.2 million, down $119.5 million, or 39%, from the comparable year-ago period. The declines in operating lease income and operating lease expense reflected the fact that this portfolio is decreasing over time as no new operating leases are being originated, and the same factors discussed above.

The ratio of operating lease asset credit losses to average operating lease assets, net of recoveries, was an annualized 1.71% in the first nine months of 2004, down from 1.94% in the comparable year-ago period.

Provision for Income Taxes

The provision for income taxes in the third quarter of 2004 was $38.3 million and represented an effective tax rate on income before taxes of 29.0%. The provision for income taxes increased $1.0 million from the year-ago quarter, due to a higher effective tax rate. The effective tax rates in the second quarter of 2004 and the third quarter 2003 were 28.3% and 26.3%, respectively. The higher effective tax rate in the 2004 third quarter reflected a reduction in estimated 2004 tax benefits (credits) from a reduced level of investments in partnerships and the recording of non-deductible expenses.

For the first nine months of 2004, provision for income taxes was $116.5 million and represented an effective tax rate on income before taxes of 27.5%. This represented an increase of $12.0 million from the same period in 2003, in which the effective tax rate was 26.3%, reflecting higher pre-tax income.

Each quarter, taxes for the full year are estimated and year-to-date tax accrual adjustments are made. Revisions to the full year estimate of accrued taxes occur periodically due to changes in the tax rates, audit resolution with taxing authorities, and newly enacted statutory, judicial, and regulatory guidance. These changes, when they occur, affect accrued taxes and can result in fluctuations in the quarterly effective tax rate.

In accordance with FAS 109, Accounting for Income Taxes , no deferred income taxes are to be recorded when a company intends to permanently reinvest their earnings from a foreign activity. As of September 30, 2004, the company intended to permanently reinvest the earnings from its foreign asset securitization activities of approximately $83.7 million.

Management expects the 2004 effective tax rate to remain below 30% as the level of tax-exempt income, general business credits, and asset securitization activities remain consistent with prior years.

CREDIT RISK

Credit risk is the risk of loss due to adverse changes in a borrower’s ability to meet its financial obligations under agreed upon terms. The company is subject to credit risk in lending, trading, and investment activities. The nature and degree of credit risk is a function of the types of transactions, the structure of those transactions, and the parties involved. The majority of the company’s credit risk is associated with lending activities, as the acceptance and management of credit risk is central to profitable lending. Credit risk represents a limited portion of the total risks associated with the investment portfolio and is incidental to trading activities. Credit risk is mitigated through a combination of credit policies and processes and portfolio diversification. These include origination/underwriting criteria, portfolio monitoring processes, and effective problem asset management. There are very specific and differing methodologies for managing credit risk for commercial credits compared with consumer credits (see Credit Risk Management section of the Company’s 2003 Form 10-K for a complete discussion).

Loan and Lease Composition

Table 10 reflects period-end loan and lease portfolio mix by type of loan
or lease, as well as by business segment:

Table 10 - Loans and Lease Portfolio Composition


	September 30, 2004					June 30, 2004 ⁽¹⁾					March 31, 2004					December 31, 2003					September 30, 2003
(in millions)	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
By Type
Commercial
Commercial and industrial	$	5,440		23.3	%	$	5,277		23.3	%	$	5,480		24.6	%	$	5,314		23.8	%	$	5,433		24.0	%
Commercial real estate		4,473		19.2			4,514		19.9			4,272		19.2			4,172		18.6			4,047		17.8

Total Commercial		9,913		42.5			9,791		43.2			9,752		43.7			9,486		42.4			9,480		41.8

Consumer
Automobile loans		1,885		8.1			1,814		8.0			2,267		10.2			2,992		13.4			3,709		16.4
Automobile leases		2,317		9.9			2,185		9.6			2,066		9.3			1,902		8.5			1,688		7.4
Home equity ⁽²⁾		4,047		17.4			3,906		17.2			3,757		16.9			3,639		16.3			3,498		15.4
Residential mortgage ⁽²⁾		4,004		17.2			3,690		16.3			2,976		13.4			2,681		12.0			2,415		10.6
Other loans ⁽²⁾		422		1.8			389		1.7			375		1.7			375		1.7			383		1.7

Total Consumer		12,675		54.4			11,984		52.9			11,441		51.3			11,589		51.8			11,693		51.6

Total Loans and Direct Financing Leases	$	22,588		96.9		$	21,775		96.1		$	21,193		95.1		$	21,075		94.2		$	21,173		93.4

Operating lease assets		717		3.1			889		3.9			1,071		4.8			1,260		5.6			1,455		6.4
Securitized loans		—		—			—		—			28		0.1			37		0.2			49		0.2

Total Credit Exposure	$	23,305		100.0	%	$	22,664		100.0	%	$	22,292		100.0	%	$	22,372		100.0	%	$	22,677		100.0	%

Total Automoble Exposure ⁽³⁾	$	4,919		21.1	%	$	4,888		21.6	%	$	5,432		24.4	%	$	6,191		27.7	%	$	6,901		30.4	%

By Business Segment ⁽⁴⁾
Regional Banking
Central Ohio	$	5,944		25.5	%	$	5,652		24.9	%	$	4,988		22.4	%	$	4,652		20.8	%	$	4,491		19.8	%
Northern Ohio		2,809		12.1			2,694		11.9			2,681		12.0			2,579		11.5			2,639		11.6
Southern Ohio/Kentucky		1,826		7.8			1,759		7.8			1,703		7.6			1,677		7.5			1,623		7.2
West Michigan		2,236		9.6			2,216		9.8			2,155		9.7			2,077		9.3			2,028		8.9
East Michigan		1,388		6.0			1,359		6.0			1,341		6.0			1,268		5.7			1,306		5.8
West Virginia		866		3.7			811		3.6			808		3.6			802		3.6			802		3.5
Indiana		863		3.7			811		3.6			753		3.4			731		3.3			741		3.3

Total Regional Banking		15,932		68.4			15,302		67.5			14,429		64.7			13,786		61.7			13,630		60.1

Dealer Sales		5,774		24.8			5,840		25.8			6,399		28.7			7,095		31.6			7,598		33.5
Private Financial Group		1,395		6.0			1,381		6.1			1,322		5.9			1,296		5.8			1,260		5.6
Treasury / Other		204		0.9			141		0.6			142		0.7			195		0.9			189		0.8

Total Credit Exposure	$	23,305		100.0	%	$	22,664		100.0	%	$	22,292		100.0	%	$	22,372		100.0	%	$	22,677		100.0	%

⁽¹⁾ Effective June 30, 2004, $282 million of commercial and industrial loans were reclassified to commercial real estate to conform to the classification of these loans with the presentation of similar loans.

⁽²⁾ Consumer loans that are secured by a first mortgage on residential property are presented as “residential mortgage loans.” Consumer loans that are secured by a junior mortgage on residential property are presented as “Home equity loans.” Reclassification of prior period balances have been made to conform with this presentation.

⁽³⁾ Sum of automobile loans and leases, operating lease assets, and securitized loans.

⁽⁴⁾ Prior period amounts have been reclassified to conform to the current period business segment structure.

During 2004, the composition of the loan and lease portfolio changed such that lower credit risk home equity loans and residential mortgages each represented 17% of total credit exposure at September 30, 2004, up from 15% and 11%, respectively, a year earlier. Conversely, C&I loans have declined from 24% a year ago to 23% at September 30, 2004, reflecting, in part, strategies to exit large, individual commercial credits, including out-of-footprint shared national credits.

At the beginning of the 2004 second quarter, the criteria for categorizing commercial loans as either C&I loans or CRE loans was clarified. The new criteria are based on the purpose of the loan. Previously, the categorization was based on the nature of the collateral securing, or partially securing, the loan. Under this new methodology, as new loans are originated or existing loans renewed, loans secured by owner-occupied real estate are categorized as C&I loans (previously CRE loans) and unsecured loans for the purpose of developing real estate are categorized as CRE loans (previously C&I loans). As a result of this change, $282 million in C&I loans were reclassified to CRE loans effective June 30, 2004. Prior periods were not reclassified. This change had no impact on the underlying credit quality of total commercial loans. However, it did increase average reported CRE loans in the 2004 third quarter by $282 million, with an equal decrease in average reported C&I loans.

The company also has a portfolio of automobile operating lease assets. Although these assets are reflected on the balance sheet, they are not part of total loans and leases or earning assets. In addition, prior to June 30, 2004, there was a small pool of securitized automobile loans, which represented off-balance sheet securitized automobile loan assets. Both of these asset classes represent automobile financing credit exposure, despite not being components of total loans and leases. As such, operating lease assets and securitized loans are added to the on-balance sheet automobile loans and leases to determine a total automobile financing exposure, which Management finds helpful in evaluating the overall credit risk for the company.

During the third quarter of 2004, $153 million of automobile loans were sold, resulting in a third quarter pre-tax gain on the sale of automobile loans of $0.3 million. This sale increased the total automobile loans sold since the beginning of 2003 to $3.7 billion. These sales represented a continuation of a strategy to reduce exposure to automobile financing to approximately 20% of total credit exposure (see Table 10). At September 30, 2004, this exposure was $4.9 billion, down from $6.2 billion at year-end, and represented 21% of total credit exposure, down from 22% at the end of the last quarter and from 30% a year earlier.

Net Loan and Lease Charge-offs

Table 11 reflects net loan and lease charge-off detail for each of the last
five quarters, and the first nine-month period for 2003 and 2004:

Table 11 - Net Loan and Lease Charge-offs

Net Charge-offs by Loan and Lease Type


	2004							2003
(in thousands)	Third		Second			First		Fourth		Third
Commercial and industrial	$	972	$	(2,803	)	$	5,956	$	31,186	$	12,222
Commercial real estate		1,592		2,940			1,637		5,743		3,621

Total Commercial		2,564		137			7,593		36,929		15,843

Consumer
Automobile loans		5,142		5,604			13,422		11,346		10,773
Automobile direct financing leases		2,415		2,159			3,159		1,936		1,450

Automobile loans and leases		7,557		7,763			16,581		13,282		12,223

Home equity		4,527		3,019			3,116		3,464		3,416
Residential mortgage		534		302			316		174		246
Other loans		1,298		1,294			1,021		1,294		1,046

Total Consumer		13,916		12,378			21,034		18,214		16,931

Total Net Charge-offs	$	16,480	$	12,515		$	28,627	$	55,143	$	32,774

Net Charge-offs - Annualized Percentages


	2004									2003
	Third			Second			First			Fourth			Third
Commercial and industrial		0.07	%		(0.20)	%		0.44	%		2.32	%	$	0.91	%
Commercial real estate		0.14			0.28			0.16			0.56			0.36

Total Commercial		0.10			0.01			0.32			1.55			0.68

Consumer
Automobile loans		1.11			0.96			1.77			1.29			1.20
Automobile direct financing leases		0.43			0.40			0.64			0.43			0.36

Automobile loans and leases		0.74			0.69			1.32			1.00			0.94

Home equity		0.46			0.32			0.34			0.39			0.40
Residential mortgage		0.05			0.04			0.04			0.03			0.05
Other loans		1.28			1.38			1.11			1.34			1.10

Total Consumer		0.45			0.41			0.70			0.61			0.61

Net Charge-offs as a % of Average Loans		0.30	%		0.23	%		0.53	%		1.03	%		0.64	%

Table 11 - Net Loan and Lease Charge-offs Continued

Net Charge-offs by Loan and Lease Type


	Nine Months Ending
	September 30,
(in thousands)	2004		2003
Commercial and industrial	$	4,125	$	53,672
Commercial real estate		6,169		4,774

Total Commercial		10,294		58,446

Consumer
Automobile loans		24,168		28,920
Automobile direct financing leases		7,733		3,792

Automobile loans and leases		31,901		32,712

Home equity		10,662		11,140
Residential mortgage		1,152		658
Other loans		3,613		3,710

Total Consumer		47,328		48,220

Total Net Charge-offs	$	57,622	$	106,666

Net Charge-offs - Annualized Percentages


	Nine Months Ending
	September 30,
	2004			2003
Commercial and industrial		0.10	%		1.29	%
Commercial real estate		0.19			0.16

Total Commercial		0.14			0.83

Consumer
Automobile loans		1.34			1.22
Automobile direct financing leases		0.48			0.39

Automobile loans and leases		0.94			0.97

Home equity		0.37			0.45
Residential mortgage		0.05			0.04
Other loans		1.25			1.29

Total Consumer		0.52			0.63

Net Charge-offs as a % of Average Loans		0.35	%		0.73	%

2004 Third Quarter versus 2003 Third Quarter and 2004 Second Quarter

Total net charge-offs for the 2004 third quarter were $16.5 million, or an annualized 0.30% of average total loans and leases. This was a reduction from $32.8 million, or 0.64%, in the year-ago quarter. However, it was an increase from $12.5 million in the second quarter, or an annualized 0.23% of average total loans and leases, as net charge-offs in the second quarter were reduced by a $9.7 million one-time recovery of a previously charged-off commercial loan. This recovery lowered total commercial (C&I and CRE) net charge-offs by 39 basis points and total loan and lease net charge-offs by 18 basis points. Excluding the impact of this recovery, 2004 second quarter total net charge-offs would have been $22.2 million, or an annualized 0.41% of average total loans and leases. Gross charge-offs in the third quarter declined $4.5 million, or 15%, from the second quarter.

Total commercial net charge-offs in the third quarter were $2.6 million, or an annualized 0.10%, down from $15.8 million, or an annualized 0.68%, in the year-ago quarter and up from only $137 thousand in the previous quarter. Adjusting for the $9.7 million recovery noted above (39 basis point impact), second quarter total commercial net charge-offs would have been $9.8 million, or an annualized 0.40% of related loans.

Total consumer net charge-offs in the current quarter were $13.9 million, or an annualized 0.45% of related loans. This compared with $16.9 million, or 0.61%, in the year-ago quarter and $12.4 million, or an annualized 0.41% of related loans in the 2004 second quarter.

Total automobile loan and lease net charge-offs in the 2004 third quarter were $7.6 million, or an annualized 0.74% of average automobile loans and leases. This compared with $12.2 million of net charge-offs, or an annualized 0.94%, in the year-ago quarter and $7.8 million, or an annualized 0.69% in the second quarter.

2004 First Nine Months versus 2003 First Nine Months

Total net charge-offs for the first nine months of 2004 were $57.6 million, or an annualized 0.35% of average total loans and leases. This was a 46% reduction from $106.7 million, or 0.73%, in the comparable year-ago period. Performance for the first nine months of 2004 was consistent with the company’s net charge-off target of 0.35%-0.45% for a stable economic environment.

Total commercial (C&I and CRE) net charge-offs in the first nine months of 2004 were only $10.3 million, or an annualized 0.14%, down from $58.4 million, or 0.83%, in the comparable year-ago period. The decline from the year-ago period reflected improved credit quality, including lower non-performing assets (NPAs), as well as the benefit of a $9.7 million C&I recovery in the 2004 first nine-month period.

Total consumer net charge-offs in the first nine months of 2004 were $47.3 million, or an annualized 0.52% of related loans. This compared with $48.2 million, or 0.63%, in the comparable year-ago period. Total automobile loan and lease net charge-offs in the first nine months of 2004 were $31.9 million, or an annualized 0.94% of average automobile loans and leases, down slightly from $32.7 million, or an annualized 0.97% of average automobile loans and leases in the year-ago nine-month period.

Non-performing Assets and Past Due Loans and Leases

Table 12 reflects period-end NPAs and past due loans and leases detail for
each of the last five quarters:

Table 12 - Non-Performing Assets and Past Due Loans and Leases


	September 30,			June 30,			March 31,			December 31,			September 30,
(in thousands)	2004			2004			2004			2003			2003
Non-accrual loans and leases
Commercial and industrial	$	27,140		$	32,044		$	45,056		$	43,387		$	82,413
Commercial real estate		19,762			15,782			20,019			22,399			30,545
Residential mortgage		13,197			13,952			12,052			9,695			8,923
Home equity		7,685			—			—			—			—

Total non-performing loans and leases (NPLs)		67,784			61,778			77,127			75,481			121,881
Other real estate, net		12,692			12,918			14,567			11,905			15,196

Total Non-performing Assets (NPAs)	$	80,476		$	74,696		$	91,694		$	87,386		$	137,077

Accruing loans and leases past due 90 days or more	$	53,456		$	51,490		$	59,697		$	55,913		$	66,060

NPLs as a % of total loans and leases		0.30	%		0.28	%		0.36	%		0.36	%		0.58	%
NPAs as a % of total loans and leases and other real estate		0.36			0.34			0.43			0.41			0.65
Allowance for loan and lease losses as a % of:
NPLs		417			464			383			397			276
NPAs		351			384			322			343			245
Allowance for loan and lease losses plus allowance for unfunded commitments and letters of credit:
NPLs		461			515			425			444			304
NPAs		389			426			357			384			270
Accruing loans and leases past due 90 days or more to total loans and leases		0.24			0.24			0.28			0.27			0.31

NPAs were $80.5 million at September 30, 2004, down $56.6 million, or 41%, from the prior year, and up $5.8 million, or 8%, from June 30, 2004. NPAs as a percent of total loans and leases and other real estate were 0.36% at September 30, 2004, down from 0.65% a year-ago, but up slightly from 0.34% at June 30, 2004. At September 30, 2004, the company adopted a new policy of placing home equity loans and lines on non-accrual status when they exceed 180 days past due. Such loans were previously classified as accruing loans and leases past due 90 days or more. This policy change conforms the home equity loans and lines classification to that of other consumer loans secured by residential real estate. As a result of this change in policy, the current quarter included $7.7 million of non-performing home equity loans and lines secured by real estate. NPAs at September 30, 2004, included $30.2 million of lower-risk residential real estate-related assets, which represented 38% of total NPAs. This compared with $19.1 million, or 14%, at the end of the year-ago quarter.

The over 90-day delinquent, but still accruing, ratio was 0.24% at September 30, 2004, down from 0.31% a year ago, and unchanged from 0.24% at June 30, 2004.

Table 13 reflects NPA activity. The $22.7 million of new NPAs in the 2004 third quarter included the addition of the $7.7 million of non-performing home equity loans and lines due to the policy change noted above. Excluding the
$7.7 million, new NPAs in the third quarter were $15.1 million.

Non-performing Assets Activity

Table 13 — Non-Performing Asset Activity


	Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
(in thousands)	2004			2004			2004			2003			2003
Beginning of Period	$	74,696		$	91,694		$	87,386		$	137,077		$	133,722
New non-performing assets		22,740			25,727			27,208			38,367			52,213
Returns to accruing status		—			(1,493	)		(54	)		(454	)		(319	)
Loans and lease losses		(5,424	)		(12,872	)		(10,463	)		(39,657	)		(22,090	)
Payments		(10,202	)		(13,571	)		(10,717	)		(22,710	)		(18,905	)
Sales		(1,334	)		(14,789	)		(1,666	)		(25,237	)		(7,544	)

End of Period	$	80,476		$	74,696		$	91,694		$	87,386		$	137,077

Allowances for Credit Losses (ACL) and Provision for Credit Losses

The company maintains two reserves, both of which are available to absorb possible credit losses: the allowance for loan and lease losses (ALLL) and the allowance for unfunded loan commitments (AULC). When summed together, these reserves constitute the total allowances for credit losses (ACL). Table 14
reflects activity in the ALLL and AULC for the past five quarters:

Table 14 — Allowances for Credit Losses


	Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
(in thousands)	2004			2004			2004			2003			2003
Allowance for Loan and Lease Losses, Beginning of Period	$	286,935		$	295,377		$	299,732		$	336,398		$	307,667
Loan and lease losses		(26,366	)		(30,845	)		(37,167	)		(68,023	)		(43,261	)
Recoveries of loans previously charged off		9,886			18,330			8,540			12,880			10,487

Net loan and lease losses		(16,480	)		(12,515	)		(28,627	)		(55,143	)		(32,774	)

Provision for credit losses		11,785			5,027			25,596			26,341			51,615
Net change in allowance for unfunded loan commitments and letters of credit		1,186			896			3,433			(1,785	)		(457	)
Allowance of assets sold and securitized ⁽¹⁾		(776	)		(1,850	)		(4,757	)		(6,079	)		10,347

Allowance for Loan and Lease Losses, End of Period	$	282,650		$	286,935		$	295,377		$	299,732		$	336,398

Allowance for Unfunded Loan Commitments and Letters of Credit, Beginning of Period	$	31,193		$	32,089		$	35,522		$	33,737		$	33,280
Net change		(1,186	)		(896	)		(3,433	)		1,785			457

Allowance for Unfunded Loan Commitments and Letters of Credit, End of Period	$	30,007		$	31,193		$	32,089		$	35,522		$	33,737

Total Allowances for Credit Losses	$	312,657		$	318,128		$	327,466		$	335,254		$	370,135

Allowances for Credit Losses as a % of total loans and leases		1.38	%		1.46	%		1.55	%		1.59	%		1.75	%
Components of ALLL as a % of total loans and leases:
Transaction reserve		0.84	%		0.86	%		0.91	%		0.88	%		0.98	%
Economic reserve		0.33			0.36			0.38			0.40			0.47
Specific reserve		0.08			0.10			0.10			0.14			0.14

Total		1.25	%		1.32	%		1.39	%		1.42	%		1.59	%

⁽¹⁾ The third quarter 2003 includes the allowance for loan losses associated with automobile loans from a securitizations trust that was consolidated as a result of the adoption of FASB Interpretation No. 46 on July 1, 2003.

The September 30, 2004, ALLL was $282.7 million, down from $336.4 million a year ago and from $286.9 million at June 30, 2004. These declines reflected continued credit quality improvement, the change in the mix of the loan portfolio to lower-risk residential mortgages and home equity loans, and improvement in the economic outlook. Expressed as a percent of period-end loans and leases, the ALLL at September 30, 2004, was 1.25%, down from 1.59% a year-ago and from 1.32% at June 30, 2004. The ALLL as a percent of NPAs was 351% at September 30, 2004, up from 245% a year ago, but down from 384% at June 30, 2004.

The September 30, 2004, AULC was $30.0 million, down slightly from $33.7 million at the end of the year-ago quarter, and from $31.2 million at June 30, 2004.

On a combined basis, the ACL as a percent of total loans and leases was 1.38% at September 30, 2004, compared with 1.75% a year ago and 1.46% at the end of last quarter. The ACL as a percent of NPAs was 389% at September 30, 2004, compared with 270% a year earlier and 426% at June 30, 2004.

The provision for credit losses in the 2004 third quarter was $11.8 million, a $39.8 million reduction from the year-ago quarter, but a $6.8 million increase from the 2004 second quarter. The reduction in provision expense from the year-ago quarter reflected overall improved portfolio quality performance and a stronger economic outlook, only partially offset by provision expense related to loan growth. The increase in provision expense from the second quarter primarily reflected lower recoveries, as the second quarter included a $9.7 million commercial loan recovery. As previously disclosed,

effective January 1, 2004, the company adopted a more quantitative approach to calculating the economic reserve component of the ALLL making this component more responsive to changes in economic conditions (see discussion below). This change, combined with the quantitative approach for determining the transaction reserve component, as well as changes to the specific reserve component, may result in more volatility in the total ALLL, and corresponding provision for loan and lease losses.

The ALLL consists of three components, the transaction reserve, the economic reserve, and specific reserves (see the Credit Risk discussion in company’s 2003 Form 10-K for additional discussion).

Transaction reserve – This ALLL component is based on historical portfolio performance information. Specifically, the probability-of-default and the loss-in-event-of-default are assigned an expected risk factor based on the type and structure of each credit. Reserve factors are then calculated and applied at an individual loan level for all products.

Specific reserves – This ALLL component represents the sum of credit-by-credit reserve decisions for individual C&I and CRE loans when it is determined that the related expected risk factor is insufficient to cover the estimated losses embedded in the specified credit facility.

Economic reserve – This ALLL component reflects anticipated losses impacted by changes in the economic environment. As previously reported, effective January 1, 2004, the company adopted a significantly more quantitative approach to the calculation of the economic reserve component. In order to quantify the economic reserve, the company identified four statistically significant indicators of loss volatility over the seven-year period from 1996 through 2003. The four variables as identified by the regression model are: (1) the US Index of Leading Economic Indicators, (2) the US Corporate Profits Index, (3) the US Unemployment Index, and (4) the University of Michigan Current Consumer Confidence Index.

This methodology permits the decomposition of the total ALLL ratio into these three components and provides increased insight into the rationale for increases or decreases in the overall ALLL ratio. As shown in Table 14, the ALLL ratio at September 30, 2004 was 1.25%, of which 0.84% represented the transaction reserve, 0.33% the economic reserve, and 0.08% specific reserves. Of the 7 basis point decline in the ALLL ratio from 1.32% at June 30, 2004, the transaction and specific reserves each accounted for 2 basis points of the decline. This reflected the combination of the shift in the loan and lease portfolio mix toward higher credit quality loans, as well as the release of specific reserves due to the improvement in the credit quality and/or the resolution of individual C&I and CRE credit situations. The remaining 3 basis points of decline in the ALLL ratio represented lower relative economic reserves, reflecting an improved economic outlook. This more quantitative methodology for determining the ALLL will be more responsive to changes in the portfolio mix, the economic environment, and individual credit situations, with the result being an ALLL ratio that exhibits greater quarterly fluctuations.

MARKET RISK

Market risk is the potential for losses in the fair value of the company’s assets and liabilities due to changes in interest rates, exchange rates, and equity prices. The company incurs market risk in the normal course of business. Market risk arises when the company extends fixed-rate loans, purchases fixed-rate securities, originates fixed-rate certificates of deposit (CDs), obtains funding through fixed-rate borrowings, and leases automobiles and equipment based on expected lease residual values. Market risk arising from changes in interest rates, which affects the market values of fixed-rate assets and liabilities, is interest rate risk. Market risk arising from the possibility that the uninsured residual value of leased assets will be different at the end of the lease term than was estimated at the lease’s inception is residual value risk. From time to time, the company also has small exposures to trading risk and foreign exchange risk. At September 30, 2004, the company had $120.3 million of trading assets, primarily in its broker/dealer businesses.

Interest Rate Risk

Interest rate risk is the primary market risk incurred by the company. It results from timing differences in the repricing and maturity of assets and liabilities and changes in relationships between market interest rates and the yields on assets and rates on liabilities, including the impact of embedded options.

Management seeks to minimize the impact of changing interest rates on the company’s net interest income and the fair value of assets and liabilities. The board of directors establishes broad policies regarding interest rate and market risk

and liquidity risk. The asset and liability committee (ALCO) establishes specific operating limits within the parameters of the board of directors’ policies. ALCO regularly monitors position concentrations and the level of interest rate sensitivity to ensure compliance with board of directors approved risk tolerances (see Interest Rate Risk discussion in the company’s 2003 Form 10-K for a complete discussion).

Interest rate risk modeling is performed monthly. Two broad approaches to modeling interest rate risk are employed: income simulation and economic value analysis. An income simulation analysis is used to measure the sensitivity of forecasted net interest income to changes in market rates over a one-year horizon. The economic value analysis (Economic Value of Equity or EVE) is calculated by subjecting the period-end balance sheet to changes in interest rates and measuring the impact of the changes in the value of the assets and liabilities.

The simulations for evaluating short-term interest rate risk exposure are scenarios that model gradual 100 and 200 basis point increasing and decreasing parallel shifts in interest rates over the next twelve-month period beyond the interest rate change implied by the current yield curve. The table below shows the results of the scenarios as of September 30, 2004, and June 30, 2004. All
of the positions were well within the board of directors’ policy limits.

Net Interest Income at Risk (%)


Basis point change scenario	-200		-100		+100		+200
Board Policy Limits	-4.0	%	-2.0	%	-2.0	%	-4.0	%

September 30, 2004	N.M.		-0.5	%	+0.3	%	+0.5	%
June 30, 2004	N.M.		-0.3	%	-0.0	%	-0.1	%
December 31, 2003	N.M.		-0.3	%	-0.2	%	-0.5	%
N.M. – Not Meaningful.

The primary simulations for EVE risk assume an immediate and parallel increase in rates of +/- 100 and +/- 200 basis points beyond any interest rate change implied by the current yield curve. The table below outlines the results
compared to the previous quarter and policy limits.

Economic Value of Equity at Risk (%)


Basis point change scenario	-200		-100		+100		+200
Board Policy Limits	-12.0	%	-5.0	%	-5.0	%	-12.0	%

September 30, 2004	N.M.		-0.4	%	-1.4	%	-3.9	%
June 30, 2004	N.M.		+1.5	%	-2.8	%	-6.2	%
December 31, 2003	N.M.		+1.8	%	-3.5	%	-7.9	%
N.M. – Not Meaningful.

LIQUIDITY RISK

The objective of effective liquidity management is to ensure that cash flow needs can be met on a timely basis at a reasonable cost under both normal operating conditions and unforeseen or unpredictable circumstances. The liquidity of the Bank is available to originate loans and leases and to repay deposit and other liabilities as they become due or are demanded by customers. Liquidity risk arises from the possibility that funds may not be available to satisfy current or future commitments based on external macro market issues, investor perception of financial strength, and events unrelated to the company such as war, terrorism, or financial institution market specific issues (see Liquidity discussion in the company’s 2003 Form 10-K for a complete discussion).

The primary source of funding is core deposits from retail and commercial customers (see Table 15). As of September 30, 2004, core deposits totaled $16.7 billion, and represented 83% of total deposits. This compared with $15.6 billion, or 83% of total deposits, a year earlier. Most of the growth in core deposits was attributable to growth in interest bearing and non-interest bearing demand deposits as retail CDs declined.

Table 15 - Deposit Liabilities


	September 30, 2004					June 30, 2004					March 31, 2004					December 31, 2003					September 30, 2003
(in millions)	Amount		%			Amount		%			Amount		%			Amount		%			Amount		%
By Type
Demand deposits
Non-interest bearing	$	3,264		16.2	%	$	3,327		17.1	%	$	2,918		15.4	%	$	2,987		16.2	%	$	3,003		15.9	%
Interest bearing		7,472		37.2			7,124		36.6			6,866		36.2			6,411		34.7			6,425		34.1
Savings deposits		2,983		14.8			3,011		15.5			3,002		15.8			2,960		16.0			3,000		15.9
Retail certificates of deposit		2,441		12.1			2,412		12.4			2,395		12.6			2,462		13.3			2,484		13.2
Other domestic time deposits		588		3.0			595		3.1			608		3.2			631		3.4			638		3.4

Total Core Deposits		16,748		83.3			16,470		84.7			15,789		83.2			15,451		83.6			15,550		82.5
Domestic time deposits of $100,000 or more		998		5.0			808		4.2			791		4.2			789		4.3			844		4.5
Brokered time deposits and negotiable CDs		1,896		9.4			1,679		8.6			1,942		10.2			1,772		9.6			1,837		9.8
Foreign time deposits		467		2.3			508		2.5			467		2.4			475		2.5			603		3.2

Total Deposits	$	20,109		100.0	%	$	19,465		100.0	%	$	18,989		100.0	%	$	18,487		100.0	%	$	18,834		100.0	%

By Business Segment ⁽²⁾
Central Ohio	$	4,400		21.9	%	$	4,386		22.5	%	$	4,378		23.1	%	$	4,184		22.6	%	$	4,189		22.3	%
Northern Ohio		4,015		20.0			3,774		19.4			3,517		18.5			3,505		19.0			3,531		18.8
Southern Ohio/Kentucky		1,601		8.0			1,559		8.0			1,476		7.8			1,442		7.8			1,437		7.6
West Michigan		2,699		13.4			2,599		13.4			2,609		13.7			2,457		13.3			2,529		13.4
East Michigan		2,169		10.8			2,081		10.7			2,030		10.7			1,988		10.8			2,000		10.6
West Virginia		1,381		6.9			1,369		7.0			1,292		6.8			1,315		7.1			1,324		7.0
Indiana		666		3.3			668		3.4			637		3.4			648		3.5			661		3.5

Total Regional Banking		16,931		84.2			16,435		84.4			15,939		84.0			15,539		84.1			15,671		83.2
Dealer Sales		70		0.3			71		0.4			77		0.4			77		0.4			65		0.4
Private Financial Group		1,125		5.6			1,016		5.2			1,057		5.6			1,164		6.3			1,117		5.9
Treasury/Other ⁽¹⁾		1,983		9.9			1,943		10.0			1,916		10.0			1,707		9.2			1,981		10.5

Total Deposits	$	20,109		100.0	%	$	19,465		100.0	%	$	18,989		100.0	%	$	18,487		100.0	%	$	18,834		100.0	%

⁽¹⁾ Comprised largely of brokered deposits and negotiable CDs.

⁽²⁾ Prior period amounts have been reclassified to conform to the current period business segment structure.

Liquidity policies and limits are established by the board of directors, with operating limits set by ALCO. Two primary liquidity measures are the ratio of loans and operating lease assets to deposits and the percentage of assets funded with non-core, or wholesale, liabilities. The limits set by the board for these two liquidity measures are 135% and 40%, respectively. At September 30, 2004, the actual ratio of loans and operating leases to deposits was 116%, while the percentage of assets funded with non-core or wholesale liabilities was 35%. In addition, guidelines are established by ALCO to ensure diversification of wholesale funding by type, source, and maturity and provide sufficient balance sheet liquidity to cover 100% of wholesale funds maturing within a six-month time period. A contingency funding plan is in place, which includes forecasted sources and uses of funds under various scenarios in order to prepare for unexpected liquidity shortages, including the implications of any rating agency changes. ALCO meets monthly to identify and monitor liquidity issues, provide policy guidance, and oversee adherence to, and the maintenance of, an evolving contingency funding plan.

Credit ratings by the three major credit rating agencies are an important component of the company’s liquidity profile. Among other factors, the credit ratings are based on the financial strength, credit quality and concentrations in the loan portfolio, the level and volatility of earnings, capital adequacy, the quality of management, the liquidity of the balance sheet, the availability of a significant base of core retail and commercial deposits, and the company’s ability to access a broad array of wholesale funding sources. Adverse changes in these factors could result in a negative change in credit ratings and impact not only the ability to raise funds in the capital markets, but also the cost of these funds. In addition, certain financial on- and off-balance sheet arrangements contain credit rating triggers that could increase funding needs if a negative rating change occurs. Letter of credit commitments for marketable securities, interest rate swap collateral agreements, and certain asset securitization transactions contain credit rating provisions.

As of September 30, 2004, credit ratings are as follows:


	Senior
	Unsecured	Subordinated	Short
	Notes	Notes	Term	Outlook
Huntington Bancshares Incorporated
Moody’s Investor Service ⁽¹⁾	A2	A3	P1	Negative
Standard and Poor’s	A-	BBB+	A2	Stable
Fitch Ratings ⁽¹⁾	A	A-	F1	Negative
The Huntington National Bank
Moody’s Investor Service ⁽¹⁾	A1	A2	P1	Negative
Standard and Poor’s	A	A-	A1	Stable
Fitch Ratings ⁽¹⁾	A	A-	F1	Negative

⁽¹⁾ Following Huntington’s announcement on November 3, 2004, as more fully described in Note 4 to the Unaudited Condensed Consolidated Financial Statements, Fitch Ratings revised their outlook for Huntington to Negative from Stable. Also, Moody’s Investors Service placed all the ratings of Huntington on review for possible downgrade.

Management believes that sufficient liquidity exists to meet the funding needs of the Bank and the parent company.

OFF-BALANCE SHEET ARRANGEMENTS

Like other financial organizations, Huntington has various commitments in the ordinary course of business that, under GAAP, are not recorded in the financial statements. Specifically, Huntington makes various commitments to extend credit to customers, to sell loans, and to maintain obligations under operating-type non-cancelable leases for its facilities. Derivatives and other off-balance sheet arrangements are discussed under the “Market Risk” section of the company’s 2003 Form 10-K.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. There were $989 million of outstanding standby letters of credit at September 30, 2004. Non-interest income was recognized from the issuance of these standby letters of credit of $8.5 million for the nine-month period ended September 30, 2004. The carrying amount of deferred revenue related to standby letters of credit at September 30, 2004, was $3.9 million. Standby letters of credit are included in the determination of the amount of risk-based capital that the company and the Bank are required to hold.

CAPITAL

Capital is managed both at the parent and the Bank levels. Capital levels are maintained based on regulatory capital requirements and the economic capital required to support credit, market, and operation risks inherent in the company’s business and to provide the flexibility needed for future growth and new business opportunities. Management places significant emphasis on the maintenance of a strong capital position, which promotes investor confidence, provides access to the national markets under favorable terms, and enhances business growth and acquisition opportunities. The importance of managing capital is also recognized, and Management continually strives to maintain an appropriate balance between capital adequacy and providing attractive returns to shareholders.

Shareholders’ equity totaled $2.5 billion at September 30, 2004. This balance represented a $186 million increase from December 31, 2003. The growth in shareholders’ equity resulted from the retention of net income after dividends to shareholders of $181 million and stock option exercises of $18 million. This growth was offset by a decrease in accumulated other comprehensive income of $16 million. The decrease in accumulated other comprehensive income primarily resulted from a decline in the market value of securities available for sale, partially offset by an increase in the market value of cash flow hedges at September 30, 2004, compared with December 31, 2003.

(the “Incentive Plan”). Under the terms of the Incentive Plan, these options were to vest on the earlier of September 4, 2006, or at such time as the closing price for Huntington’s common stock for five consecutive trading days reached or exceeded $25.00. Huntington’s common stock closing price exceeded $25.00 for each of the five consecutive trading days beginning October 1, 2004, and ending October 7, 2004. As a result, options for 2.0 million shares of common stock granted under the Incentive Plan, net of options for 1.2 million shares cancelled due to employee attrition, became fully vested and exercisable after the close of trading on October 7, 2004.

At September 30, 2004, the company had unused authority to repurchase up to 7.5 million shares, though no shares were repurchased during the 2004 third quarter. This authorization may be used to help mitigate the dilutive earnings impact resulting from the issuance of these Incentive Plan shares. All purchases under the current authorization will be made from time-to-time in the open market or through privately negotiated transactions depending on market conditions.

On October 13, 2004, the board of directors declared a quarterly cash dividend on its common stock of $0.20 per common share. The dividend is
payable January 3, 2005, to shareholders of record on December 17, 2004.

Table 16 - Quarterly Common Stock Summary


	2004				2003
	Third		Second		First		Fourth		Third
Common Stock Price
High ⁽¹⁾	$	25.150	$	23.120	$	23.780	$	22.550	$	20.890
Low ⁽¹⁾		22.700		20.890		21.000		19.850		19.220
Close		24.910		22.980		22.030		22.500		19.850
Average closing price		24.105		22.050		22.501		21.584		20.199
Book value per share	$	10.69	$	10.40	$	10.31	$	9.93	$	9.79
Dividends
Cash dividends declared	$	0.200	$	0.175	$	0.175	$	0.175	$	0.175
Common shares outstanding (000s)
Average - Basic		229,848		229,429		229,227		228,902		228,715
Average - Diluted		234,348		232,659		232,915		231,986		230,966
Ending		230,153		229,476		229,410		229,008		228,870
Common Share Repurchase Program (000s)
Number of Shares Repurchased		—		—		—		—		—

⁽¹⁾ High and low stock prices are intra-day quotes obtained from NASDAQ.

Average equity to average assets in the 2004 third quarter was 7.66%, up from 7.49% a year earlier, and up from 7.42% for the second quarter of 2004 (see Table 17). At September 30, 2004, the tangible equity to assets ratio was 7.11%, up from 6.77% a year ago, and from 6.95% at June 30, 2004. The increase from June 30, 2004, primarily reflected growth in retained earnings.

Table 17 - Capital Adequacy


	Three Months Ended
	September 30			June 30,			March 31			December 31,			September 30,
(in millions)	2004			2004			2004			2003			2003
Total Risk-Adjusted Assets	$	28,773		$	28,413		$	28,236		$	28,164		$	27,949
Tier 1 Risk-Based Capital Ratio		9.08	%		8.98	%		8.74	%		8.53	%		8.40	%
Total Risk-Based Capital Ratio		12.50			12.56			12.38			11.95			11.19
Tier 1 Leverage Ratio		8.36			8.20			8.08			7.98			7.94
Tangible Equity / Assets Ratio		7.11			6.95			6.97			6.79			6.77
Tangible Equity / Risk-Weighted Assets Ratio		7.80			7.64			7.61			7.30			7.24
Average Equity / Average Assets		7.66			7.42			7.39			7.32			7.49

At September 30, 2004, the tangible equity to risk-weighted assets ratio was 7.80%, up significantly from 7.24% in the year-ago quarter, and up from 7.64% at June 30, 2004. The increase in the tangible equity to risk-weighted assets ratio reflected primarily the positive impact resulting from reducing the overall risk profile of earning assets throughout this period, most notably a less risky loan portfolio mix, as well as growth in low risk investment securities.

The Federal Reserve Board, which supervises and regulates the company, sets minimum capital requirements for each of these regulatory capital ratios. In the calculation of these risk-based capital ratios, risk weightings are assigned to certain asset and off-balance sheet items such as interest rate swaps, loan commitments, and securitizations. Huntington’s Tier 1 Risk-based Capital, Total Risk-based Capital, Tier 1 Leverage ratios, and risk-adjusted assets for the recent five quarters are well in excess of minimum levels established for “well capitalized” institutions of 6.00%, 10.00%, and 5.00%, respectively. At September 30, 2004, the company had regulatory capital ratios in excess of “well capitalized” regulatory minimums.

The Bank is primarily supervised and regulated by the Office of the Comptroller of the Currency, which establishes regulatory capital guidelines for banks similar to those established for bank holding companies by the Federal Reserve Board. At September 30, 2004, the Bank had regulatory capital ratios in excess of “well capitalized” regulatory minimums.

LINES OF BUSINESS DISCUSSION

Management uses earnings on an operating basis, rather than on a GAAP basis, to measure underlying performance trends for each business segment. Analyzing earnings on an operating basis is very helpful in assessing underlying performance trends, a critical factor used by Management to determine the success of strategies and future earnings capabilities. Operating earnings represent GAAP earnings adjusted to exclude the impact of the significant items discussed in Note 8 to the Condensed Consolidated Financial Statements.

Regional Banking

Regional Banking provides products and services to retail, business banking, and commercial customers. These products and services are offered in seven operating regions within the five states of Ohio, Michigan, West Virginia, Indiana, and Kentucky through the company’s traditional banking network. Each region is further divided into Retail and Commercial Banking units. Retail products and services include home equity loans and lines of credit, first mortgage loans, direct installment loans, business loans, personal and business deposit products, as well as sales of investment and insurance services. Retail products and services comprise 59% and 80% of total Regional Banking loans and deposits, respectively. These products and services are delivered to customers through banking offices, ATMs, Direct Bank— Huntington’s customer service center, and Web Bank at huntington.com. Commercial banking serves middle-market and commercial banking relationships, which use a variety of banking products and services including commercial loans, international trade,

cash management, leasing, interest rate protection products, capital market alternatives, 401(k) plans, and mezzanine investment capabilities.

2004 Third Quarter versus 2003 Third Quarter

Regional banking contributed $59.1 million of the company’s net operating earnings in the third quarter of 2004, up $4.0 million, or 7%, from the third quarter of 2003. This increase was due primarily to a $27.5 million reduction in provision for credit losses, which was partially offset by $21.3 million decline in mortgage banking income. Total fully taxable equivalent revenues declined $18.4 million, or 7%, from the third quarter of 2003 due to lower mortgage banking income. Total expenses increased $3.0 million, or 2%, from the year-ago quarter. The ROA was 1.39% in the current quarter, down from 1.45% in the year-ago quarter, though the ROE of 22.4% in the current quarter increased from 21.2% in the year-ago quarter.

Compared with the year-ago quarter, 2004 third quarter net interest income increased $2.2 million, or 1%, reflecting an 18% increase in average total loans and 5% increase in average total deposits, partially offset by a 43 basis point decline in net interest margin to 4.10% from 4.53%.

Average total loans increased $2.4 billion, or 18%, primarily reflecting a $1.7 billion increase in average residential mortgages, a $0.5 billion, or 15%, increase in home equity loans and lines of credit, as well as a $0.5 billion, or 12%, increase in average CRE loans. The growth in home equity, residential mortgages, and CRE loans reflected the continued favorable impact of low interest rates on demand for real estate-related financing. Total average C&I loans declined $0.2 billion, or 6%, from the year-ago quarter, due in part to weak demand, as well as the impact from continued strategies to lower exposure to large individual commercial credits, and to a lesser degree, a decline in shared national credits. Small Business C&I and CRE loans (included in total average C&I and CRE loans) increased $0.2 billion, or 11%, due to specific strategies that focus on this business segment.

Average total deposits increased $0.8 billion, or 5%. This reflected strong growth in average interest bearing demand deposits, up $0.9 billion, or 15%, which was partially offset by a $0.1 billion, or 4%, decline in domestic time deposits. Of the $0.8 billion increase in average total deposits, Commercial Banking accounted for $0.6 billion and Small Business $0.3 billion, which was partially offset by a $0.1 billion decline in average total deposits in Mortgage Banking.

The company continued its focus on customer service and delivery channel optimization. From the year-ago quarter, six banking offices were opened while three were closed. The number of Retail Banking demand deposit account (DDA) households increased 2% from the end of the year-ago quarter. Progress was made in improving the Retail Banking 90-day cross sell ratio, from 2.0 products or services to 2.3, a 15% improvement. Further, the online banking penetration of retail households with on-line banking increased to 36% from 29% a year earlier, with a 31% increase in the number of online customers.

The 43 basis points, or an effective 9%, decline in the net interest margin to 4.10% from 4.53% reflected a combination of factors. This included a shift in the loan portfolio mix to lower-margin, but higher credit quality, consumer residential real estate-related loans. In addition, interest rates offered on deposits have been near historical lows throughout this period, and despite rising recently, they remain below levels of a year ago such that it remained difficult to make commensurate reductions in deposit rates compared with reductions in loan yields compared with a year earlier.

The provision for credit losses for the third quarter of 2004 was $5.1 million or $27.5 million less than in the year-ago quarter. This decline reflected the overall improvement in credit quality including lower NPAs, as well as the shift to lower-rate, lower-risk residential mortgages and home equity loans and lines. Net charge-offs were $7.2 million, or an annualized 0.18% of average loans and leases, down from $19.8 million, or an annualized 0.59%, in the year-ago quarter (see Credit Risk for additional discussion regarding charge-offs and allowance for loan loss reserve methodologies).

Non-interest income decreased $20.5 million, or 21%, from the year-ago quarter, primarily due to the $21.3 million lower mortgage banking income, partially offset by higher deposit service charges and equipment operating lease income. Mortgage banking income decreased $21.3 million, or 71%, from the year-ago quarter largely reflecting a change in reporting methodology. In 2004, MSR impairment and recovery is reflected in the Treasury/Other segment, whereas in the year-ago quarter a $17.8 million recovery of previously recorded MSR temporary impairment was recognized in Regional Banking. The remainder of the decline in mortgage banking income is attributable to lower production and lower gain on loan sales. The increase in equipment operating lease income reflected growth in operating leases, a relatively new business line. Deposit service charges increased $1.8 million, or 4%, reflecting an increase in demand deposit accounts and

higher personal NSF and overdraft fees. The $1.4 million, or 11%, decline in other income reflected lower fee sharing revenue from internal partners.

Non-interest expense increased $3.0 million, or 2%, from the year-ago quarter, reflecting a $5.9 million, or 10%, increase in personnel costs due to higher salaries and benefit expenses, and to a lesser degree an increase in the number of employees. The $3.4 million, or 4%, decrease in other expenses reflected lower marketing, telecommunications, outside services, and transportation expenses, partially offset by higher occupancy.

2004 Third Quarter versus 2004 Second Quarter

Regional Banking earnings in the 2004 third quarter decreased $1.7 million, or 3%, from the 2004 second quarter. This reflected a $9.0 million increase in the provision or credit losses, an $8.1 million increase in net-interest income, and a $3.6 million decline in non-interest expense, partially offset by a $5.2 million decline in non-interest income. The ROA and ROE in the 2004 third quarter were 1.39% and 22.4%, respectively, down from 1.52% and 23.9% in the 2004 second quarter.

Net interest income increased $8.1 million, or 5%, from the prior quarter, reflecting 6% growth in average total loans and 2% in average total deposits, partially offset by a decline in the net interest margin to 4.10% from 4.15%.

Average total loans increased $0.8 billion, or 6%. Consumer loans increased $0.7 billion, or 11%, reflecting strong growth in residential mortgages and home equity loans and lines of credit. Excluding the impact of the $282 million of C&I loans reclassified as CRE loans on June 30, 2004, average C&I loans increased at a 15% annualized rate during the quarter, with average CRE loans decreasing at a 5% annualized rate. Total average deposits increased $0.4 billion, or 2%, reflecting growth in interest bearing and non-interest bearing demand deposits, up 3% and 2%, respectively, and a 3% increase in domestic time deposits.

From the end of the 2004 second quarter, the number of DDA households increased an annualized 6%, and the 90-day cross sell ratio increased to 2.34 products from 2.17 products. On-line banking penetration of retail households increased to 36%, and the number of active online users increased 7%.

The $9.0 million increase in provision for credit losses from the second quarter was primarily due to a $9.7 million recovery on a single C&I credit in the second quarter. Net charge offs were $7.2 million, or an annualized 0.18% of average loans and leases in the current quarter. This was up from $1.8 million, or 0.05%, in the second quarter, as the second quarter net charge-offs were reduced by the $9.7 million C&I recovery.

Non-interest expense declined $3.6 million, or 2%, from the second quarter of 2004 . This reflected a $7.9 million decline in other expense as the second quarter included $5.8 million of costs related to investments in partnerships generating tax benefits for the first half of 2004. Personnel costs increased $4.1 million impacted by severance costs related to the 2% decline in full-time equivalent employees and lower deferred salary costs associated with lower loan production.

2004 First Nine Months versus 2003 First Nine Months

Regional banking contributed $167.9 million of the company’s net operating earnings in the first nine months of 2004, up $52.7 million from the comparable year-ago period. This increase reflected the benefits of a $93.4 million reduction in provision for credit losses, and an $11.5 million increase in net interest income, partially offset by a $14.5 million increase in non-interest expense and a $9.4 million decline in non-interest income. The ROA and ROE for first nine months of 2004 were 1.40% and 21.9%, respectively, up from 1.06% and 15.2%, respectively, in the year-ago period.

Net interest income in the first nine months of 2004 increased $11.5 million, or 3%, reflecting a 14% increase in average total loans and leases and a 5% increase in average total deposits, partially offset by a 32 basis point decline in net interest margin to 4.16% from 4.48%.

Average total loans increased $1.8 billion, or 14%, primarily reflecting a $1.3 billion, or 83%, increase in average residential mortgages, a $0.5 billion, or 15%, increase in home equity loans and lines of credit, as well as a $0.4 billion, or 12%, increase in average CRE loans. Total average C&I loans declined $0.3 million, or 7%, from the year-ago nine-month period. The growth in home equity, residential mortgages, and CRE loans, as well as the decline in C&I loans reflected the same factors noted above in the year-ago quarter comparison. Small Business C&I and CRE loans (included in total average C&I and CRE loans) increased $0.2 billion, or 11%, due to specific strategies that focus on this business segment.

Average total deposits increased $0.7 billion, or 5%. This reflected strong growth in average interest bearing demand deposits, up $0.9 billion, or 17%, partially offset by a $0.4 billion, or 10%, decline in domestic time deposits. Of the $0.7 billion increase in average total deposits, Corporate Banking accounted for $0.6 billion and Small Business $0.3 billion, with this benefit partially offset by a $0.2 billion decline in average total Retail Banking deposits.

The 32 basis points, or an effective 7%, decline in the net interest margin to 4.16% from 4.48% reflected the same factors discussed above in the 2004 third quarter versus 2003 third quarter performance.

Provision for credit losses for the first nine months of 2004 was $3.2 million, down $93.4 million from the year-ago period reflecting the overall improvement in credit quality, as well as the shift to lower risk residential mortgages and home equity loans and lines. Net charge-offs for the first nine months were $20.6 million, or an annualized 0.19% of average loans and leases, down from $71.7 million, or 0.73%, in the comparable year-ago period. The first nine months of 2004 net charge-offs were reduced by a $9.7 million C&I recovery in the second quarter on a single credit that had been charged-off in the fourth quarter of 2002 (see Credit Risk for additional discussion regarding charge-offs and allowance for loan loss reserve methodologies).

Non-interest income for the first nine months of 2004 decreased $9.4 million, or 4%, from the comparable year-ago period, reflecting a combination of factors including declines in mortgage banking revenue and other income, partially offset by increases in service charges on deposit accounts, and higher other income.

Non-interest expense for the first nine months of 2004 increased $14.5 million, or 3%, from the year-ago period. This reflected an $11.6 million, or 6%, increase in personnel expenses for the same reasons noted above in the prior year quarter comparison. The $2.0 million, or 1%, increase in other expenses reflected higher occupancy, depreciation, and charge card processing expenses.

Table 18 - Regional Banking


	2004		2004			2003		3Q04 vs. 3Q03						2004		2003		2004 vs. 2003
	Third		Second			Third		Amount			%			9 Months		9 Months		Amount			%
INCOME STATEMENT (in thousands)
Net Interest Income	$	163,147	$	155,083		$	160,973	$	2,174			1.4	%	$	469,292	$	457,805	$	11,487			2.5	%
Provision for credit losses		5,086		(3,949	)		32,537		(27,451	)		-84.4	%		3,242		96,615		(93,373	)		-96.6	%

Net Interest Income After Provision for Credit Losses		158,061		159,032			128,436		29,625			23.1	%		466,050		361,190		104,860			29.0	%

Operating lease income		584		327			—		584		NM				960		—		960		NM
Service charges on deposit accounts		42,923		42,357			41,151		1,772			4.3	%		125,983		119,522		6,461			5.4	%
Brokerage and insurance income		3,615		4,515			4,199		(584	)		-13.9	%		11,986		12,042		(56	)		-0.5	%
Trust services		263		225			200		63			31.5	%		780		748		32			4.3	%
Mortgage banking		8,588		13,227			29,880		(21,292	)		-71.3	%		27,848		47,821		(19,973	)		-41.8	%
Other service charges and fees		10,685		10,529			10,401		284			2.7	%		30,627		31,900		(1,273	)		-4.0	%
Other		10,584		11,295			11,941		(1,357	)		-11.4	%		33,584		29,128		4,456			15.3	%

Total Non-Interest Income Before Securities Gains		77,242		82,475			97,772		(20,530	)		-21.0	%		231,768		241,161		(9,393	)		-3.9	%
Securities gains		14		—			—		14		NM				14		—		14		NM

Total Non-Interest Income		77,256		82,475			97,772		(20,516	)		-21.0	%		231,782		241,161		(9,379	)		-3.9	%

Operating lease expense		492		275			—		492		NM				811		—		811		NM
Personnel costs		65,859		61,728			59,917		5,942			9.9	%		190,743		179,110		11,633			6.5	%

•		$39.8 million, or 77%, reduction in the provision for credit losses, reflecting improved credit quality performance,

•		$26.8 million, or 9%, reduction in non-interest expense, primarily due to a decline in operating lease expense,

•		$6.9 million, or 3%, increase in fully taxable equivalent net interest income, reflecting the benefit of an increase in earning assets, primarily loans and leases, partially offset by a decline in the net interest margin, and

•		$13.3 million cumulative effect of a change in accounting principle, net of tax, in the year-ago quarter.

		offset by higher investment securities gains, and

•		$1.0 million, or 3%, increase in income tax expense, reflecting the impact of a higher effective tax rate.

•		$28.2 million, or 13%, decline in non-interest income, primarily due to declines in mortgage banking and operating lease income, partially offset by higher investment securities gains, and

•		$6.8 million increase in the provision for credit losses, as the 2004 second quarter included the benefit of a $9.7 million one-time recovery on a single commercial (C&I) credit.

•		$8.7 million, or 3%, decline in non-interest expense, primarily due to lower operating lease expense, and

•		$4.4 million, or 2%, increase in fully taxable equivalent net interest income, reflecting the benefit of an increase in earning assets, primarily loans and leases, as well as a slight increase in the net interest margin,

•		$5.1 million, or 12%, reduction in income tax expense, primarily as a result of the lower level of pre-tax income.

•		$95.2 million, or 69%, reduction in the provision for credit losses, reflecting improved credit quality performance,

•		$71.5 million, or 8%, reduction in non-interest expense, primarily due to a decline in operating lease expense, partially offset by higher personnel costs,

•		$49.7 million, or 8%, increase in fully taxable equivalent net interest income, reflecting the benefit of an increase in earning assets, primarily loans and leases, partially offset by a decline in the net interest margin, and

•		$13.3 million cumulative effect of a change in accounting principle, net of tax, in the year-ago period.

•		$187.0 million, or 23%, decline in non-interest income, reflecting declines in operating lease income, mortgage banking income, and gains on sale of automobile loans and the absence of a gain on the sale of branch offices in the year-ago period, and

•		$12.0 million, or 11%, increase in income tax expense, reflecting higher level of pre-tax income, as well as the impact of a slightly higher effective tax rate.

⁽¹⁾		Due to the adoption of FASB Interpretation No. 46 for variable interest entities.

⁽²⁾		Based on income before cumulative effect of change in accounting principle, net of tax.

⁽³⁾		On a fully taxable equivalent (FTE) basis assuming a 35% tax rate.

⁽⁴⁾		Non-interest expense less amortization of intangibles divided by the sum of FTE net interest income and non-interest income excluding securities gains (losses).

1.		Automobile leases originated through April 2002 are accounted for as operating leases – Automobile leases originated before May 2002 are accounted for using the operating lease method of accounting because they do not qualify as direct financing leases. Operating leases are a non-interest earning asset with the related rental income, other revenue, and credit recoveries reflected as operating lease income, a component of non-interest income. Under this accounting method, depreciation expenses, as well as other costs and charge-offs, are reflected as operating lease expense, a component of non-interest expense. With no new operating leases originated since April 2002, the operating lease assets are rapidly decreasing and will eventually run-off, along with related operating lease income and expense. Since operating lease income and expense represent a significant percentage of total non-interest income and expense, respectively, throughout this reporting period, their downward trend influences total non-interest income and non-interest expense trends.

		Automobile leases originated since April 2002 are accounted for as direct financing leases, an interest earning asset included in total loans and leases with the related income reflected as interest income and included in the calculation of the net interest margin. Credit charge-offs and recoveries are reflected in the allowance for loan and lease losses (ALLL), with related changes in the ALLL reflected in provision for credit losses. The relative newness and rapid growth of this portfolio has resulted in higher reported automobile lease growth rates than in a more mature portfolio. To better understand overall trends in automobile lease exposure, it is helpful to compare trends in the combined total of automobile leases plus operating leases (see the company’s 2003 Form 10-K for a full discussion).

2.		Transition from a weak economic environment in 2003 to a slow recovering economic environment in 2004. The weak economic environment resulted in continued weak demand for commercial and industrial (C&I) loans, which, when combined with strategies to lower the overall credit risk profile of the company (see below), has contributed to generally declining C&I loans throughout this period.

3.		Declining interest rates in 2003 with generally increasing, though fluctuating, interest rates in 2004. Interest rates impacted, among other factors, loan and deposit growth, the net interest margin, and the valuation of mortgage servicing rights (MSRs) and investment securities.

•		The historically low interest rate environment in 2003 and 2004, despite a general increase in short-term rates during the first nine months of 2004, resulted in strong demand and resultant growth in residential real estate, home equity, and commercial real estate (CRE) loans generally throughout this period. Mortgage banking revenue was also favorably impacted by the significant mortgage origination activity.

•		As interest rates fell in 2003, it became increasingly difficult to lower interest rates offered on deposit accounts commensurate with the overall decline in interest rates and yields on earning assets. This created an extremely competitive environment in which to grow deposits and resulted in an inability to lower deposit rates commensurate with the overall decline in earning asset rates. This contributed to the decline in the net interest margin throughout 2003. Though short-term interest rates have risen generally throughout the first nine months of 2004, they remain at historically low levels and the competition for deposits has remained very competitive. As a result, deposit rates have also risen thus not permitting much expansion in the net interest margin.

•		Since the second quarter of 2002, the company generally has retained the servicing on mortgage loans it originates and sells. The mortgage servicing right (MSR) represents the present value of expected future net servicing income for the loan. MSR values are very sensitive to movements in interest rates. Expected future net servicing income depends on the projected outstanding principal balances of the underlying loans, which can be greatly reduced by prepayments. Prepayments usually increase when mortgage interest rates decline and decrease when mortgage interest rates rise. Thus, as interest rates decline, less future income is expected and the value of MSRs declines and becomes impaired when the valuation is less than the recorded book value. The company recognizes temporary impairment due to change in interest rates through a valuation reserve and records a direct write-down of the book value of its MSRs

		for other-than-temporary declines in valuation. Changes and fluctuations in interest rate levels between quarters resulted in some quarters reporting an MSR temporary impairment, with others reporting a recovery of previously reported MSR temporary impairment. Such swings in MSR valuations have significantly impacted quarterly mortgage banking income throughout this period (see Table 3).

•		The company uses gains or losses on investment securities, and more recently gains or losses on trading account assets, to offset MSR temporary valuation changes. As a result, changes in interest rate levels have also resulted in securities gains or losses and trading losses. As such, in quarters where an MSR temporary impairment is recognized, investment securities and/or trading account assets were sold resulting in a gain on sale, and vice versa. Investment securities gains or losses are reflected in the income statement in a single non-interest income line item, whereas trading gains or losses are a component of other non-interest income on the income statement. The earnings impact of the MSR valuation change and securities gain/loss may not exactly offset due to, among other factors, the difference in the timing of when the MSR valuation is determined and recorded, compared with when the securities are sold and any gain or loss is recorded (see Table 3).

•		Automobile loan sales – One strategy has been to lower the credit exposure to automobile loans and leases to at least 20% of total credit exposure, as manifested through the sale of automobile loans. These sales of higher-rate, higher-risk loans impact results in a number of ways including: lower growth rates in automobile, total consumer, and total company loans; the generation of gains reflected in non-interest income; lower net interest income than otherwise would be the case if the loans were not sold; and lower net interest margin (see Table 3).

•		Reduction in large-individual C&I and CRE credits – This strategy has been reflected in the reduction in shared national credits, as well as other, mostly C&I loans. In addition, the company sold and charged-off lower-quality C&I and CRE credits in 2003 and 2004. This strategy was a contributing factor in the declines in C&I loan balances, NPAs, and the ALLL. In certain quarters, this strategy contributed to higher C&I net charge-offs.

5.		Adoption of FIN 46 – Effective July 1, 2003, the company adopted Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities . The adoption of FIN 46 resulted in the consolidation of $1.0 billion of previously securitized automobile loans and a $13.3 million after-tax charge in the 2003 third quarter for the cumulative effect of a change in accounting principle (see Tables 1 and 2).

6.		Corporate Restructuring Charges – 2003 and 2004 non-interest expense reflected recoveries of previously established corporate restructuring reserves, which were no longer needed (see Table 3) and lowered 2003 and 2004 non-interest expense (see Note 21 of the company’s 2003 Form 10-K Notes to Consolidated Financial Statements).

7.		Single commercial recovery – A single commercial credit recovery in the 2004 second quarter on a loan previously charged off in the 2002 fourth quarter favorably impacted the 2004 second quarter provision expense (see Table 3), as well as C&I, total commercial, and total net charge-offs for the quarter (see Table 11).

8.		Gain on the sale of West Virginia banking offices – In the 2003 third quarter, the company sold four banking offices in West Virginia which resulted in a $13.1 million gain (see Tables 1 and 2).

9.		SEC related expenses and accruals – As previously disclosed, the Securities and Exchange Commission (SEC) is conducting a formal investigation regarding certain financial accounting and disclosure matters, including certain matters that were the subject of prior restatements by Huntington (see Note 3 of the Notes to Unaudited Condensed Consolidated Financial Statements). For the first nine months of 2004, the company recorded certain expenses and accruals related to this investigation, most notably in the third quarter (see Table 3).

⁽¹⁾		Fully taxable equivalent (FTE) yields are calculated assuming a 35% tax rate. See Table 1 for the FTE adjustment.

⁽²⁾		Loan and lease and deposit average rates include impact of applicable derivatives and non-deferrable fees.

⁽³⁾		Consumer loans that are secured by a first mortgage on residential property are presented as “residential mortgage loans.” Consumer loans that are secured by a junior mortgage on residential property are presented as “Home equity loans.” Reclassification of prior period balances have been made to conform with this presentation.

⁽⁴⁾		The 2004 second quarter calculation has been corrected to conform to other periods presented.

	•		$8.6 million, or 8%, increase in personnel costs primarily reflecting higher salaries and benefits expense, partially offset by lower sales commissions due to weaker mortgage origination and capital market activities.

	•		$3.9 million, or 21%, increase in other expense reflecting higher automobile lease residual value losses, as well as SEC-related expenses and accruals.

	•		$1.3 million, or 8%, increase in net occupancy expense.

	•		$1.1 million, or 10%, increase in professional services including SEC-related expenses.

	•		$3.7 million, or 14%, decrease in other expense as the second quarter included $5.8 million of costs related to investments in partnerships generating tax benefits for the first half of 2004. The 2004 third quarter other expense included automobile lease residual value losses, as well as SEC-related expenses and accruals.

	•		$3.1 million, or 38%, decrease in marketing expense due to lower advertising expenditures.

	•		$1.2 million benefit from the release of restructuring reserves in the current quarter.

	•		$4.4 million, or 56%, increase in professional services primarily reflecting SEC-related expenses.

	•		$2.0 million, or 2%, increase in personnel costs.

	•		$31.6 million, or 10%, increase in personnel costs primarily reflecting a $17.3 million, or 28%, increase in benefits expense and an $17.0 million, or 8%, increase in salaries.

	•		$11.5 million, or 21%, increase in other expense reflecting $5.8 million of costs related to investments in partnerships generating tax benefits in the current nine-month period and to a lesser degree accruals for pending litigation and SEC-related costs.

	•		$5.2 million in restructuring reserve releases that lowered expenses in the year-ago nine-month period.

⁽¹⁾		Effective June 30, 2004, $282 million of commercial and industrial loans were reclassified to commercial real estate to conform to the classification of these loans with the presentation of similar loans.

⁽²⁾		Consumer loans that are secured by a first mortgage on residential property are presented as “residential mortgage loans.” Consumer loans that are secured by a junior mortgage on residential property are presented as “Home equity loans.” Reclassification of prior period balances have been made to conform with this presentation.

⁽³⁾		Sum of automobile loans and leases, operating lease assets, and securitized loans.

⁽⁴⁾		Prior period amounts have been reclassified to conform to the current period business segment structure.